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Bailouts are back, Fed outlook reassessed, Pfizer M&A - what's moving markets

Published 03/13/2023, 06:50 AM
Updated 03/13/2023, 07:36 AM
© Reuters

By Geoffrey Smith -- Bailouts are back. Tech bros and crypto firms breathe a sigh of relief as the Feds step in to guarantee all of the deposits at Silicon Valley Bank and Signature Bank, as well as setting up a new liquidity program to stop contagion to the wider banking sector. That hasn't stopped other west coast banks in particular from selling off in premarket, however. The dollar plunges as markets bet that the Federal Reserve will be too scared of causing a crash to raise interest rates in March. Bond yields fall as the flight to safety outweighs any fear of future inflation. Crypto soars accordingly. And Pfizer is set to buy Seagen for $43 billion. Here's what you need to know in financial markets on Monday, 13th March.

1. Feds bail out tech bros

Federal authorities bailed out depositors in Silicon Valley Bank (NASDAQ:SIVB) and Signature Bank (NASDAQ:SBNY), aiming to head off a run on the country’s second-tier regional banks.

The Federal Reserve, Federal Deposit Insurance Corporation and the Treasury said they will make sure the two banks honor all of their deposits, the vast majority of which are above the $250,000 federally-insured threshold.

They also set up a new instrument, named the Bank Term Funding Plan (BTFP), which will allow banks to sell Treasury bonds and other high-quality liquid assets to the Fed at par if they need to raise liquidity. The program will be back-stopped by $25B of taxpayers’ money.

The move means that the banks’ clients, many of them venture capitalists and crypto platforms, will not have to carry the can for what appears to have been startlingly elementary risk management failures at the two banks.

2. Banking stocks still falling despite rate freeze bets

The signs of panic at incipient financial instability caused a sharp and abrupt reassessment of the outlook for interest rates.

Goldman Sachs and others said they now expect the Fed to keep rates unchanged at its meeting in March, in contrast to the consensus for a 25 basis point hike before last week’s events. The dollar fell and risk assets were broadly supported, after having fallen out of bed with a bump on Friday.

However, if the Fed and the Treasury thought they had drawn a line under the fiasco, they were much mistaken. Shares in First Republic Bank (NYSE:FRC), fell 60% in premarket trade, amid bets that it will be the next domino to fall, while PacWest Bancorp (NASDAQ:PACW) stock fell 40% and Western Alliance (NYSE:WAL) fell 45%.  

Banks with high concentrations of flighty corporate deposits are seen as being most at risk from concerns about liquidity, while those with more staid retail deposit bases are seen as better insulated.

3. Stocks set to open mixed; Pfizer seen close to sealing Seagen deal

Stocks more broadly were struggling to make headway in premarket trade, with many still unsettled by the federal rescue of institutions that were largely unknown outside their respective niches until last week.

By 06:30 ET (10:30 GMT), Dow Jones futures were down 34 points, or 0.1%, while S&P 500 futures were up 0.2% and Nasdaq 100 futures were up a more solid 0.6%. All three main cash indices had lost between 1% and 1.8% on Friday. European markets were more rattled, with the main benchmark indices losing over 2% each in early trading.

While the focus is likely to stay on the banking sector later (HSBC (LON:HSBA) was down 4.3% after snapping up SVB’s U.K. operations for a nominal £1), other stocks in the news include Pfizer (NYSE:PFE), which finally agreed to buy Seagen (NASDAQ:SGEN) for $43B, and Novartis (NYSE:NVS), which outperformed after announcing a big new buyback program. A rumored deal to sell Qualtrics (NASDAQ:XM) to Silver Lake for $12.5B couldn’t stop SAP (ETR:SAPG) from falling nearly 3%. Boeing (NYSE:BA) is bucking the trend on hopes for a large order from Saudi Arabia.

4. Crypto breathes a sigh of relief

One asset class with an unambiguously positive reaction to the weekend’s developments was crypto. Some of the biggest depositors at the two banks that were rescued were Coinbase (NASDAQ:COIN) and USD Coin issuer Circle, both of whom stood to lose a large part of their reserves in the absence of a bailout.

USD Coin – a stablecoin designed to trade at $1 – had fallen as low as 88c at the weekend, after Circle’s $3.3B exposure to Silicon Valley Bank (never a secret) became widely known. It had recovered to 98.60 by early Monday in New York, still trading at a clear discount to its notional value. Coinbase stock, meanwhile, was up 3.3% in premarket.

Elsewhere, Bitcoin rose 8.5% to $22,229, while Ethereum rose 8.6% to $1,585, supported by perceptions that the Fed will be forced to stop its rate hikes.  

5. Oil down on fears for the economy; OPEC+ output held up in February

Crude oil prices fell, with concerns about the longer-term implications of bank failures in the U.S. counting for more than the sharp drop in the dollar, which would generally support prices.

By 06:45 ET, U.S. crude futures were down 1.3% at $75.64 a barrel, while Brent was down 1.2% at $81.76 a barrel.

Argus Media estimated that the total output of the OPEC+ bloc had remained steady in February, despite pressure on Russia from tightened western sanctions.

Latest comments

Ridiculous! Bail outs bail outs bail outs. The average American suffers when this happens. How did we get into this sticky inflation mess in the first place… hint: it wasnt ukraine war.
Markets would tank to 3300! Prepare yourselves for inflation and rate hikes!
DC politicians dont care about middle or working class. they print funny money and give it to bankrupt speculators in cali. privatize profits and socialize losses. im moving countries
I envy you.
Pow wow saved the crypto markets. Its all a game. All that hawkish talk now a tiny meow is all i heard
Phew! I was afraid that rich people might lose some money. that was a close one.
Powell eating his words now
A 25bn backstop by the FDIC. No wonder bank stocks cratered.
I find it ironic that a far-left Democrat Barney Frank, who authored the 2009 Dodd-Frank act, was on the board of Signature Bank.
"far left"? lol. the faq. link me the video of Barney Frank saying workers need to take over the means of production and retain the full value of the fruits of their labor.
in the end, nothing happens. there's no accountability and taxpayers and equity investors are left holding the bag.
I'm okay with equity investors losing their money. I owned some $SBNY for likely total loss. Not sure why people can't understand deposit insurance is limited to $250K per bank. Perhaps it like voters getting an ID.
A Fed bailout by any other name is still a bailout.
with my money?
We get scr**ed twice: first they invest our money in an irresponsible way and loose everything, then they need your money again to have them bailed out. Feels great, doesn't it?
The USA once again showing it is a house of cards built on debt, consumption, and chinese manufacturing. Let it all crash
Antisemite chauvinist says what?
Are you related to a dead old lady bound for hell called Madeleine?
Another challenge not of his making that Biden will handle with competence.
Well, you're the expert.
No Brad, I listen to them, unlike your narrow minded conclusions.
more on that later...not at all bright.
Biden’s Bailouts and Biden’s bank runs
They can only pro long the inevitable. You can run but you can't hide.
Buy as much gold, ammo and food as. You can
Thanks for the advice. What phone plan would you recommended for the Apocalypse?
@Brad...get the unlimited talk ham radio plan. That'll be your best option.
Whats the point of the FDIC limit? Rules dont apply anymore
They do, for the average joe.
this situation is going to pull the curtain back for alot of people.
Yellen, and the Fed, have zero credibility
essentially money printer gone BRRRRR again?
True capitalism is a corpse on life support. The lessons of 2008 have been totally forgotten … if they were ever really learned in the first place. I am utterly disgusted.
Biden is truing to push USA into Socialism.
Don't tempt me with a good time.
Can you please also bail me out when I invest money in an irresponsible way? That would be nice. Oh, and when I make a profit, everything is for me. Ok?
This is a backstop for depositors, not stock holders. Were the depositors irresponsible or do you misunderstand the situation?
97% of SVB depositors are business entities, not personal accounts. Noted business owners include Oprah Winfrey and Prince Harry.
Degenerates! All of them gonna burn in the hell. They making taking the innocents money once again to pay their gambling
You misunderstand. It is the innocent who are being rescued. Also, what gambling?
Some honest news for a change. Great article!
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