US Stocks Rise as Banks Rebound; Bonds Tumble: Markets Wrap

US stocks rose as the banking sector bounced off recent lows on the prospect of further support from US authorities.

All three major US gauges advanced as concerns over the banking sector eased. First Citizens BancShares Inc. led a rally in regional lenders after agreeing to buy SVB Financial Group’s Silicon Valley Bank. First Republic Bank jumped on a Bloomberg report that US authorities are considering expanding an emergency lending facility that would give the lender more time to bolster its balance sheet.

The Treasury 10-year yield rose about 12 basis points. A gauge of dollar strength steadied. European equities climbed with banking stocks, including Deutsche Bank AG and Credit Suisse AG, rebounding.

“They bought themselves some time, it’s hard for me to see this banking crisis lasting another month and a half,” said Win Thin, global head of currency strategy at Brown Brothers Harriman on Bloomberg Television. “I think at that point, we might get all the all clear to actually continue some tightening.”

The weekend may have brought some relief to the banking sector, but it will continue to be closely watched. A gauge of regional US banks has lost more than 90% since early February.

“While nerves are evident, there’s no doubt that the response so far has prevented the situation from becoming much worse and confidence will gradually improve as long as no other banks fall into difficulties,” Craig Erlam, a senior market strategist at Oanda wrote. “That’s obviously a big if at this point.”

Traders are in for another bumpy week: remarks from multiple Federal Reserve officials and data on a key US inflation measure are also due. Fed Minneapolis President Neel Kashkari said over the weekend that bank turmoil had increased the risk of a US recession.

“Recent bank turmoil gives us increased conviction that a deeper-than-expected recession is going to hit this year,” Chris Senyek of Wolfe Research said. He also sees “blow up” risks rising. “We’re already seeing early signs of deterioration in CRE and Autos, and we believe that widening spreads signal more trouble ahead.”

While bonds are pricing in more recession potential, equities have been recovering and earnings estimates have yet to come down, according to Morgan Stanley’s Michael Wilson — among the most prominent bearish voices on US stocks.

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“Given the events of the past few weeks, we think guidance is looking more and more unrealistic, and equity markets are at greater risk of pricing in much lower estimates ahead of any hard data changes,” Wilson wrote in a note on Monday.

Investors will be closely watching data on the personal consumption expenditures price index, which is the Fed’s preferred measure of underlying price pressure, that will come out later this week for direction on the US central bank’s rate path.

Elsewhere, European Central Bank Executive Board member Isabel Schnabel pushed for this month’s decision statement to signal possible interest-rate increases in future, according to people with knowledge of the matter.

In a further indication of risk-on sentiment, oil rose and gold slipped.

Key events this week:

US wholesale inventories, US Conf. Board consumer confidence, Tuesday
EIA Crude Oil Inventory Report, Wednesday
Eurozone economic confidence, consumer confidence, Thursday
US GDP, initial jobless claims, Thursday
Boston Fed President Susan Collins and Richmond Fed President Thomas Barkin speaks at event. Treasury Secretary Janet Yellen also speaks, Thursday
China PMI, Friday
Eurozone CPI, unemployment, Friday
US consumer income, PCE deflator, University of Michigan consumer sentiment, Friday
ECB President Christine Lagarde speaks, Friday
New York Fed President John Williams speaks, Friday

Some of the main moves in markets:

Stocks