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Europe

As a new week gets underway, we’ve seen a modest easing in the banking sector angst of the last few days, with a much better tone after the sell-off at the end of last week.

Most sectors of the markets have seen a modest rebound, helped by events on the other side of the Atlantic as reports emerge that Citizens Bank in the US is acquiring Silicon Valley Bank’s loans and deposits.  

We’re also seeing a rise in 2-year yields on both sides of the Atlantic as markets price out some of the more dire recession scenarios that were being priced at the end of last week, as markets take a breather in the wake of the turmoil seen at the end of last week.    

The rebound in yields alone suggests a calmer tone is prevailing in the short term, however, sentiment is still likely to remain on the cautious side. The rebound in banking stocks is testament to this caution with only modest gains being seen with the likes of Deutsche Bank closing the day higher but well off its intraday highs.

The best performers on the FTSE100 have been broad-based with some of the more defensive sectors underperforming, while cyclicals are doing better.

Despite the rebound being seen today with we’re still some way short of reversing the losses we saw on Friday, with Barclays enjoying a decent session, along with BP, which is getting a lift from gains in oil and gas prices.

Retailers and consumer discretionary are also getting a lift from today’s more positive vibe, with gains from the likes of JD Sports, Primark owner Associated British Foods, and Fraser’s Group, helped in some part perhaps by today’s better-than-expected CBI retail sales numbers which showed that UK retailers were more optimistic as we head into the spring and summer months.  

US

US markets have also opened higher on the back of reports that First Citizens bank has agreed on a deal to buy the US assets of Silicon Valley Bank, and US regulators look at expanding an emergency lending facility to the rest of the sector to buy more time for First Republic Bank to bolster its balance sheet.

Comments over the weekend by Minneapolis Fed President Neel Kashkari that recent events have brought the prospect of a US recession closer may well also be helping in that the prospect of a US slowdown could mean a pause in US rate hikes.

On the earnings front, we have the latest Q1 numbers from US cruise operator Carnival Corporation which showed that losses came in better than expected. This was due to a better-than-expected set of revenue numbers which came in at $4.43bn, as losses narrowed to $690m, against a forecast of -$759.7m. On the outlook management said that cruises are well booked for the remainder of the year at higher prices, however, the higher cost of fuel and other costs is acting as a headwind. On annual EBITDA Carnival says it expects to see a figure of around $4bn, which includes a $500m impact from higher fuel prices.  

FX

The US dollar is mixed today, with the pound edging back towards the 1.2300 level after some better-than-expected CBI reported sales numbers for March, which came in at their best levels since August last year.

The euro is little changed despite a better-than-expected German IFO survey for March, however, a more tempered tone from ECB officials about the prospect of future rate hikes has served to temper the upside. Today’s comments from ECB and Bank of Spain governor De Cos serve to reinforce this slight shift while acknowledging the risks of too high inflation he also acknowledged that financial tensions would play a part in any future ECB decision.

The yen has been the worst performer, with the Japanese currency losing ground on the back of the sharp rise in short-term yields.    

Commodities

Crude oil prices are getting a lift on the back of the rebound on the back of the broadly better tone for markets today. The recovery in yields as well as the wider market is helping to support prices today, along with a slightly weaker US dollar.  

The sharp rebound in yields has seen gold prices retreat sharply after failing to once again sustain a move above the $2,000 an ounce level at the end of last week.

Volatility

Financial institutions were thrust back into the spotlight ahead of the weekend break with Deutsche Bank being the latest to rattle sentiment. The underlying share price was as much as 14% lower at one point on Friday, before posting something of a rally, but the sector remains in a fragile state with central banks showing no signs of relenting when it comes to policy tightening. One day vol on Deutsche printed 216.1% against 92.31% on the month.

The rout hit other banks across Europe too, albeit to a somewhat lesser extent. Commerzbank, with the underlying falling more than 10% at one stage, saw daily vol of 147.48% against 98.13% on the month. Similar patterns were seen on the likes of Barclays at 86.13% on the day versus 60.75% on the month and Soc Gen at 115.45% on the day against 76.58% for the month. No surprise again that it was EU banks that stood out in terms of price action across CMC’s proprietary share baskets. The underlying, representing 13 of the largest eurozone financial institutions, sat more than 7% lower at one point before recovering moderately ahead of the close.

One day vol printed 100.45% against 65.21% for the month. Moving slightly away from banks and the Euro was a stand out in terms of fiat currencies. There’s concern creeping into the market now that with Eurozone banks in the spotlight, will the ECB need to provide liquidity support here. EUR/JPY was the most active trade, with daily vol of 18.08% against 13.64% on the month.

Finally in commodities, Wheat tested fresh 18-month lows last week, although a number of fundamental factors – ranging from talk that Russia may curtail exports given the low price to concerns that the summer may not be favourable to harvest – saw the grain price add more than 6% at one point on Friday. Daily volatility sat at 55% versus 34.83% on the month..  

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