The Dow Jones Industrial Average dropped on Monday as a plan to backstop all the depositors in failed Silicon Valley Bank, along with other extraordinary measures, failed to boost bank shares.
The losses were contained as some investors bet the financial shock could cause the Federal Reserve to pause interest rate hikes.
Traders are pricing in about 2-to-1 odds that the Fed raises its benchmark borrowing rate by a 0.25 percentage point at the meeting in late March. Goldman Sachs has gone even further, saying it no longer expects the Federal Reserve to hike rates at its meeting next week.
The Dow Jones Industrial Average lost 0.28 per cent. The 30-stock index, which posted its fifth straight day of declines with Monday’s session, was able to pare losses after dropping more than 284 points earlier in the session.
The S&P 500 ended down 0.15 per cent, to end at 3,855.76 after falling as much as 1.37 per cent at one point. The Nasdaq Composite closed 0.45 per cent higher at 11,188.84 points.
But investors bought up other areas of the market outside of banks, such as some technology stocks like Apple and defensive names including Johnson & Johnson and Eli Lilly.
Shares of US regional banks slumped on Monday, led by sharp losses in First Republic Bank as news of fresh financing failed to assuage fears of possible bank contagion following the collapse of SVB Financial Group and Signature Bank.
Federal regulators hope that the sweeping backstop they introduced yesterday to insulate the US financial system from Silicon Valley Bank’s collapse will hold, even as the regional lender, Signature Bank.
But yet another institution, First Republic, appears under pressure today, despite securing funding. And the blame game is well underway.
The First Republic reflects investor fears about banks’ health. The independent lender said yesterday that it had secured access to about $70 billion in additional liquidity from the Fed and JPMorgan Chase. But its shares were down nearly 60 percent in premarket trading, suggesting markets are worried that it remains in trouble.
However, one emerging ramification that still warrants attention is the impact on mortgage-backed bond markets, and the aftershocks that it could cause elsewhere. SVB is still sitting on a $50bn book of Mortgage backed securities. It might need to dump those bonds to help give depositors some of their money back if it isn’t sold — or possibly even if it is.
And overnight there have been two big M&A transactions in the biotech sector:
Firstly Sanofi SA has agreed to purchase US-based pharmaceutical firm Provention Bio in a deal worth approximately $2.9 billion, as the French drugmaker looks to boost its general medicines portfolio with a US-approved type 1 diabetes drug. The takeover price was a whopping roughly 273 per cent premium to Friday's close;
And in an even bigger deal – Pfizer Inc announced on Monday that it had struck a $43 billion deal to acquire Seagen and its targeted cancer therapies as it braces for a steep fall in COVID-19 sales and generic competition for some top-selling drugs. The takeover marks Pfizer's largest purchase in a string of recent acquisitions utilising a once-in-a-lifetime cash windfall from its COVID-19 vaccine and treatment. It will add four approved cancer therapies with combined sales of nearly $2 billion in 2022
Overall, overnight, S&P 500 sectors were mixed. Real Estate was the best performer, whilst Financials was unsurprisingly, the worst performer, by far.
Futures
The SPI futures are pointing to a 1.9 per cent fall.
Currency
One Australian dollar at 8:10 AM has strengthened compared to the US dollar yesterday buying 66.67 US cents (Mon: 66.06 US cents).
Commodities
Iron ore futures are pointing to a 1.1 per cent gain.
Gold gained 2.6 per cent. Silver jumped 6.9 per cent. Copper added 0.6 per cent and oil lost 2.5 per cent.
Figures around the globe
Across the Atlantic, European markets closed lower. London’s FTSE fell 2.6 per cent, Frankfurt lost over 3 per cent while Paris closed 2.9 per cent lower.
In Asian markets, Tokyo’s Nikkei fell 1.1 per cent, Hong Kong’s Hang Seng gained almost 2 per cent while China’s Shanghai Composite closed 1.2 per cent higher.
Yesterday, the Australian sharemarket closed 0.5 per cent lower at 7109.
Ex-dividends
Coronado Global Res (ASX:CRN) is paying 0.5075 cents fully franked
Corp Travel (ASX:CTD) is paying 6 cents unfranked
IVE Group (ASX:IGL) is paying 9.5 cents fully franked
News Corp (ASX:NWS) is paying 10.0661 cents unfranked
Paragon Care (ASX:PGC) is paying 0.6 cents fully franked
Saunders Intl (ASX:SND) is paying 2 cents fully franked
Thorney Opp (ASX:TOP) is paying 1.05 cents fully franked
Yancoal Aust (ASX:YAL) is paying 70 cents fully franked
Dividends payable
Domain Holdings Australia (ASX:DHG)
Fiducian Group (ASX:FID)
Johns Lyng Group (ASX:JLG)
McGrath (ASX:MEA)
WOTSO Property (ASX:WOT)
Sources: Bloomberg, FactSet, IRESS, TradingView, UBS, Bourse Data, Trading Economics, CoinMarketCap.
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