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(C) Reuters. FILE PHOTO: The Federal Reserve building is pictured in Washington, U.S., on March 19, 2019. REUTERS/Leah Millis/File Photo

By David Lawder, John Revill and David French

(Reuters) – Shares of U.S. regional lenders including battered First Republic Bank (NYSE:FRC) surged on Tuesday as Credit Suisse’s rescue eased fears of a wider banking crisis and investors turned their focus to the U.S. Federal Reserve’s next move.

The Fed’s relentless rate hikes to rein in inflation have been partly blamed for sparking the biggest meltdown in the banking sector since the 2008 financial crisis, and traders are split over whether the central bank will be forced to pause its hiking cycle on Wednesday to ensure financial stability.

The tumultuous 10 days for banks that culminated in the 3 billion Swiss franc ($3.2 billion) Swiss-regulator-engineered takeover of Credit Suisse by rival UBS were triggered by the collapse of Silicon Valley Bank, which sank under the weight of bond-related losses due to a surge in interest rates last year.

“The banking sector’s near-death experience over the last two weeks is likely to make Fed officials more measured in their stance on the pace of hikes,” said Standard Chartered (OTC:SCBFF) head of G10 FX research, Steve Englander.

GRAPHIC: Traders bet on rate hike as fears of bank crisis ease https://www.reuters.com/graphics/USA-RATES/FEDWATCH/xmpjkbnxmvr/chart.png

Worries over the health of midsized U.S. lenders linger, particularly First Republic Bank – which shed 90% of its market value this month. But Credit Suisse’s rescue appeared to have assuaged the worst fears of systemic contagion, pushing up shares of European banks and beaten-down U.S. regional lenders.

First Republic shares surged 53%, recovering some of their deep losses over the past two weeks, while larger U.S. banks also rallied. US Bancorp (NYSE:USB) surged 8.7%, while JPMorgan Chase (NYSE:JPM), Citigroup (NYSE:C), Wells Fargo (NYSE:WFC) and Bank of America (NYSE:BAC) all climbed 3% or more.

The S&P 500 banks index rallied 4.3%, on track for its largest one-day gain since November.

First Republic is looking at ways it can downsize if its attempts to raise new capital fail, two people familiar with the matter told Reuters. JPMorgan Chase has been helping the bank find new sources of capital after a $30 billion injection of deposits from big banks failed to stem fears over its viability.

The bank’s future will also be discussed at a two-day meeting of chief executives of major banks gathering in Washington starting Tuesday, sources familiar with the matter said.

Policymakers from Washington to Tokyo have stressed the current turmoil is different from the crisis 15 years ago, saying banks are better capitalised and funds more easily available.

In the latest effort to calm jitters, U.S. Treasury Secretary Janet Yellen said the country’s banking system was sound despite recent pressure.

Yellen said she was committed to taking actions that would mitigate risks to financial stability and taking necessary steps to ensure the safety of deposits and the U.S. banking system.

‘FEEL SECURE’

Yellen’s reassurances were echoed in Britain by Finance Minister Jeremy Hunt, who said banks and the financial system there were well-placed to cope with the problems, and by Swedish Central Bank Governor Erik Thedeen.

“We should also feel secure in the fact that the authorities that have the job to deal with this are working closely together and are working with the government. So there is good capacity to act should this head into another phase,” Thedeen said.

The European Central Bank’s top bank supervisor Andrea Enria said euro zone banks on average increased their capital ratios in the final quarter of last year and remain solid, adding that funding and liquidity positions were not “materially affected” by the Credit Suisse crisis.

Earlier, he had warned banks against being “caught off guard” by rising interest rates, in remarks the ECB said were drafted in February, before recent market upheavals.

Worries about a new financial crisis contributed to a tumble in German investor sentiment in March, the ZEW economic research institute said.

The central bank to the world’s central banks, the Bank for International Settlements, said it fully supported recent actions taken by the likes of the Swiss National Bank and Federal Reserve to address banking system problems.

“We support in full all the actions central banks have taken,” the head of the BIS, Agustin Carstens, said.

In a global response not seen since the height of the pandemic, the Fed at the weekend joined central banks in Canada, Britain, Japan, the euro zone and Switzerland in a co-ordinated action to enhance market liquidity.

GRAPHIC: Over $95 billion in market value wiped out in 2 weeks https://www.reuters.com/graphics/GLOBAL-BANKS/USA/myvmobkeovr/graphic.jpg

In Europe, the investor focus has shifted to the massive blow some Credit Suisse bondholders will take, prompting euro zone and British banking supervisors to try to stop a rout in the market for convertible bank bonds.

Additional Tier 1 bonds, or AT1s, are issued by banks to help them make up the capital buffers which regulators require them to hold. They can be converted into equity but until they are, they do not dilute a lender’s share capital.

EU authorities will never write off bank bonds before shares are wiped out, whether a bank is being wound down or there are “private solutions” to rescue it, the ECB’s Enria said.

At Credit Suisse, whose main regulators are in Switzerland, its AT1 prospectus made clear that holders would not recover any value. Nevertheless, lawyers are talking to a number of AT1 bond holders about possible legal action, law firm Quinn Emanuel Urquhart & Sullivan has said.

GRAPHIC: Credit Suisse rescue https://www.reuters.com/graphics/GLOBAL-BANKS/myvmobgwyvr/chart.png

($1 = 0.9280 Swiss franc)

(C) Reuters. FILE PHOTO: U.S. Dollar banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration

By Hannah Lang

WASHINGTON (Reuters) – The dollar pared earlier losses and sterling fell on Tuesday as traders reckoned banking stress could keep the Federal Reserve and the Bank of England from hiking interest rates much further, or at all, later in the week.

Investors’ focus has moved to a slew of central bank meetings due this week after days of volatility in markets caused by worries over the stability of the global banking sector.

The dollar index fell 0.058% to 103.270, while sterling edged 0.59% lower to $1.2204.

Markets are pricing in an 85% chance of a 25-basis-point rate hike when the Fed announces its monetary policy decision on Wednesday. The peak for the Fed’s benchmark overnight interest rate was seen at 5.5% only a few weeks ago, against about 4.8% now. [IRPR]

The dollar has followed those expectations lower, though general nervousness in financial markets has tempered selling.

Sentiment is fragile as investors are concerned over the outlook for the banking sector after shares of U.S. lender First Republic tumbled nearly 50% on Monday on fears it will need a second rescue.

“(The Fed) should signal that inflation is still the focus here, but obviously properly address what has been done, and highlight what they can do to further prevent any further contagion beyond First Republic,” said Edward Moya, senior market analyst at OANDA.

U.S. Treasury Secretary Janet Yellen told bankers on Tuesday that she is prepared to intervene to protect depositors in smaller U.S. banks that might be suffering deposit runs if they pose a risk of contagion.

“It seems that after a couple of weekends of pushing policy support and certain (Treasury) officials suggesting that they’ll do whatever it takes to guarantee deposits, what it suggests to me is that hikes can go on,” said Mazen Issa, senior FX strategist at TD Securities in New York.

Sterling moved a bit lower, staying close to an almost seven-week high against the dollar, after data showed Britain recorded a budget deficit of 16.68 billion pounds ($20.4 billion) in February, far above expectations in a Reuters poll.

On Tuesday, minutes from the Australian central bank’s March 7 policy meeting showed officials had agreed to consider the case for a rate pause at the April meeting, even before the recent bout of volatility weighed on the Australian dollar, which fell 0.88% versus the greenback at $0.666.

“In places like Canada or Australia, where those central banks have essentially said that they’re done with the interest rate tightening phase, those are the currencies that are lagging against the currencies where hikes still remain in the curve,” Issa said.

The euro last was up 0.39% to $1.0761.

In cryptocurrencies, bitcoin last rose 0.32% to $28,168.00 after hitting a nine-month high on Monday. The world’s largest cryptocurrency rose 26% last week, its best weekly gain since April 2019.

========================================================

Currency bid prices at 2:52PM (1852 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 103.2700 103.3400 -0.05% -0.213% +103.5100 +102.9900

Euro/Dollar $1.0761 $1.0723 +0.37% +0.44% +$1.0789 +$1.0704

Dollar/Yen 132.5800 131.3100 +0.99% +1.14% +132.6200 +131.0500

Euro/Yen 142.68 140.82 +1.32% +1.70% +142.7900 +140.4300

Dollar/Swiss 0.9228 0.9293 -0.68% -0.19% +0.9316 +0.9213

Sterling/Dollar $1.2205 $1.2277 -0.59% +0.92% +$1.2282 +$1.2180

Dollar/Canadian 1.3722 1.3665 +0.42% +1.28% +1.3737 +1.3644

Aussie/Dollar $0.6660 $0.6718 -0.89% -2.32% +$0.6726 +$0.6650

Euro/Swiss 0.9932 0.9962 -0.30% +0.37% +0.9978 +0.9927

Euro/Sterling 0.8816 0.8731 +0.97% -0.32% +0.8839 +0.8731

NZ $0.6173 $0.6247 -1.21% -2.80% +$0.6248 +$0.6168

Dollar/Dollar

Dollar/Norway 10.5490 10.6490 -0.86% +7.57% +10.6940 +10.4740

Euro/Norway 11.3569 11.4106 -0.47% +8.23% +11.4537 +11.2877

Dollar/Sweden 10.3466 10.3670 +0.15% -0.59% +10.4084 +10.2807

Euro/Sweden 11.1346 11.1183 +0.15% -0.13% +11.1527 +11.0832

(C) Reuters.

By Yasin Ebrahim

Investing.com — The S&P 500 rose Tuesday, led by a First Republic-led climb in bank stocks after Treasury Secretary Janet Yellen pledged more support for banks.

The S&P 500 was up 1.1%, the Dow Jones Industrial Average gained 0.7%, or 237 points, and the Nasdaq Composite was up 1.4%.

In a sign that fears about a contagion in the banking sector are cooling, First Republic Bank (NYSE:FRC) jumped more than 30% after Yellen said the U.S. government would be prepared to step in again and offer to support smaller banks in the event of bank runs.

The rally in First Republic also comes amid reports suggesting the bank is mulling various options including the sale of parts of its business if it fails to recover deposit outflows.

Other regional banks including U.S. Bancorp (NYSE:USB), Comerica Inc (NYSE:CMA), and KeyCorp (NYSE:KEY) were sharply higher, with the latter rising by more than 9%.

Energy, meanwhile, was up more than 3%, led by a jump in oil prices on easing fears about the global growth impact of a potential contagion in banks and a climb in Exxon Mobil Corp.

Exxon Mobil Corp (NYSE:XOM) was up 4% after Morgan Stanley touted optimism on the oil major, citing its “competitive positioning.”

Consumer discretionary stocks also supported the broader market melt-up, underpinned by a rally in Tesla (NASDAQ:TSLA) after Moody’s upgraded Tesla’s creditworthiness to investment grade, or Baa3, from junk status, citing the EV maker’s prudent financial policy.

As well as its escape from junk territory, Tesla was also lifted by retail sales data from China Merchants Bank International suggesting the automaker could report strong first-quarter sales in its key China market.

The rally in the broader market comes just as the Fed kicked off its two-day meeting that many expect to culminate in a quarter-point rate hike on Wednesday.

The Fed’s projections about the future path of interest rate hikes will also garner attention as markets are pricing in cuts later this year.

“Our base case is 25bp hikes in March and May but we think the Fed then will be pushed into signalling easier policy late this year, thanks to very weak economic growth, a sustained downshift in core inflation, and clear evidence that wage growth is moderating to a pace consistent with the inflation target,” Pantheon Macroeconomics said in a recent note.

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(C) Reuters. A man wearing a face mask passes in front of screens showing trading data while using an escalator outside Taiwan Stock Exchange in Taipei, Taiwan March 20, 2023. REUTERS/Annabelle Chih

By Koh Gui Qing

NEW YORK (Reuters) -Global shares leapt on Tuesday after the rescue of Credit Suisse stemmed a rout in equities and whetted risk appetite, although financial system uncertainties limited buying as investors awaited the outcome of a Federal Reserve meeting.

The Fed began a two-day meeting earlier on Tuesday and, after a wild few sessions, investors are divided about whether the central bank will raise interest rates by 25 basis points on Wednesday, or skip a chance at raising borrowing costs this month.

“We expect a 25-basis-point rate hike,” economists at TD Securities said in a note. “Post-meeting communication is likely to emphasize that the Fed is not done yet in terms of tightening, with officials also flagging the more uncertain economic environment.”

The Dow Jones Industrial Average jumped 0.98%, the S&P 500 rallied 1.3% to finish at 4,002.87 points, and the Nasdaq Composite Index climbed 1.6%.

Shares of First Republic Bank (NYSE:FRC), a top concern of U.S. investors, surged 29.5% on news that JPMorgan (NYSE:JPM) CEO Jamie Dimon is leading talks with other big banks on new steps to stabilise it, including through a possible investment.

Many investors had thought concerns about banking sector stability were a thing of the past after the 2008 crisis. But the collapse of two U.S. regional banks, plus the 11th-hour rescue of Credit Suisse, are forcing central bankers to prioritise fighting inflation alongside keeping money flowing through the financial system.

The jury is out on whether the Bank of England will hold fire when it meets this week, and the picture is not much clearer for the European Central Bank, which raised rates last week but left traders without much idea of what to expect next.

“It seems the penny is dropping, most central banks hiked interest rates too late and then raised rates too fast. And now the world is reeling with a banking crisis,” Saxo Bank strategist Jessica Amir said.

European banking stocks, which seem headed for their biggest monthly slide in three years, rose by 3.8% on Tuesday, helping lift the regional STOXX 600 index by 1.3%.

Analysts said the Swiss government-backed takeover of Credit Suisse by UBS helped soothe concerns over European financial stability, even though a wipeout of some Credit Suisse bondholders has sent shockwaves through bank debt markets.

In a nod to concerns that banks may not be out of the woods, U.S. Treasury Secretary Jane Yellen said on Tuesday that further U.S. government intervention was possible if another smaller bank experienced difficulties similar to those of other recently failed lenders.

Indeed, Bloomberg News reported on Monday that U.S officials were looking at ways to temporarily expand Federal Deposit Insurance Corp coverage to all deposits.

“While global regulators are acting with pace, this appears to be a game of ‘whack-a-mole,'” bank analyst Jonathan Mott at Barrenjoey in Sydney said.

Aided by market tension, gold has shot up to around $2,000 an ounce this week for the first time in a year. Spot gold prices took a breather on Tuesday and fell 1.95% to $1,940 an ounce.

SWISS RULES

At the heart of Monday’s steep drop in banking shares was the $17 billion write-down in Credit Suisse’s “additional tier 1” debt – part of its capital buffers – to zero.

Bondholders usually outrank shareholders in the event of a restructuring or bankruptcy. But Credit Suisse AT1 owners ended up empty-handed, which unleashed a wave of selling in this kind of debt in the European market.

Regulators in Europe and Britain stepped in to reassure investors that it would not set a precedent, and prices stabilised on Tuesday, when it became apparent that the Credit Suisse write-down was more a function of Swiss rules.

With the focus on the outlook for monetary policy, the dollar index edged lower to 103.21 against a basket of currencies around its lowest since Feb. 14, as investors grew confident enough to dip into other assets.

Fed funds futures imply about a 1-in-4 chance of the Fed pausing on Wednesday, according to CME’s FedWatch tool, while markets are divided evenly on the prospect of a hike in Britain when the Bank of England meets on Thursday.

In line with dominant expectations that U.S. rates could rise to between 4.75% and 5% on Wednesday, the two-year Treasury yield rose to 4.1686%, from Monday’s close of 3.924%. The yield on 10-year Treasury notes also climbed to 3.5999% compared with its close of 3.477% on Monday.

“The banking sector’s near-death experience over the last two weeks is likely to make Fed officials more measured in their stance on the pace of hikes,” said Steve Englander, Standard Chartered (OTC:SCBFF)’s head of G10 FX research.

The dollar rose 0.87% against the Japanese yen to 132.28 and lost out to the euro, which rose 0.41% to $1.0766.

(C) Reuters.

By Liz Moyer

Investing.com — U.S. stocks are rising as investors turn their focus to the Federal Reserve’s interest rate decision, due out Wednesday afternoon.

At 10:28 ET (14:28 GMT), the Dow Jones Industrial Average was up 203 points or 0.6%, while the S&P 500 was up 0.7% and the NASDAQ Composite was up 0.6%.

Investor jitters about the state of the banking system calmed after the weekend rescue of Credit Suisse (SIX:CSGN).

Futures traders are giving it a greater than 80% chance that the Fed will raise rates by a quarter of a percentage point. That is less than what was expected just two weeks ago but more than a pause, as the Fed keeps on its path toward taming inflation.

Treasury Secretary Janet Yellen is speaking to the American Bankers Association this morning in Washington. Her prepared remarks say the financial regulators are committed to taking the necessary steps to keep deposits and the system safe, as they did with Signature Bank and Silicon Valley Bank.

Regulators could take further action if other smaller institutions see deposit runs that threaten contagion in the system, Yellen said. “The situation is stabilizing. And the U.S. banking system remains sound,” the prepared remarks said.

First Republic Bank (NYSE:FRC) shares were up 30% after tumbling on Monday on word big banks are working on a possible capital infusion. Shares of PacWest Bancorp (NASDAQ:PACW) are up 14% and shares of Western Alliance Bancorporation (NYSE:WAL) are up 10%.

In economic data, the existing home sales reading for February showed a 14.5% month-over-month gain, and annual sales of 4.58 million, both higher than expected.

Oil was rising. Crude Oil WTI Futures were up 1.4% to $68.77 a barrel, while Brent Oil Futures were up 1.2% to $74.66 a barrel. Gold Futures were down 1.3% to $1,957.