# US stock futures, bonds rally as markets flirt with Fed pause
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2023-03-13
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: U.S. Stock Futures Rally In Asian Trade Amid SVB Fallout
Meta Description: Investors optimistic as authorities announce measures to stabilise banking system and prevent contagion after Silicon Valley Bank failure.
URL: https://financedigest.com/us-stock-futures-bonds-rally-as-markets-flirt-with-fed-pausehtml

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By Wayne Cole

SYDNEY (Reuters) – U.S. stock futures rallied in tense Asian trade on Monday as authorities announced plans to limit the fallout from the collapse of Silicon Valley Bank (SVB), while [investors wagered a rate hike this month](https://www.financedigest.com/6-months-to-go-until-brexit-and-investor-sentiment-remains-bold.html "6 months to go until Brexit and investor sentiment remains bold") was no longer a certainty.

The dollar slid as Goldman Sachs predicted the U.S. Federal Reserve would no longer lift interest rates next week, capping the [biggest rally for short-dated Treasuries since](https://www.financedigest.com/uk-firms-plan-biggest-pay-rises-since-2012-to-fill-staff-gaps.html "UK firms plan biggest pay rises since 2012 to fill staff gaps") 1987.

The wild sea change in [markets came after the Fed](https://www.financedigest.com/stocks-up-bond-yields-fall-as-markets-mull-a-fed-policy-pause.html "Stocks up, bond yields fall as markets mull a Fed policy pause") and U.S. Treasury announced a range of measures to stabilise the [banking system and said depositors at SVB](https://www.financedigest.com/swiss-regulator-monitoring-banks-and-insurers-after-svb-collapse.html "Swiss regulator monitoring banks and insurers after SVB collapse") would have access to their deposits on Monday.

The [Fed said it would make additional funding available through a new Bank](https://www.financedigest.com/asian-shares-gain-as-fears-about-rapid-fed-hikes-bank-crisis-fade.html "Asian shares gain as fears about rapid Fed hikes, bank crisis fade") Term Funding Program, which would offer loans up to one year to depository institutions, backed by Treasuries and other assets these institutions hold.

The moves came as authorities took possession of New York-based Signature Bank, the second [bank failure](https://www.financedigest.com/bank-of-england-fines-former-tsb-executive-over-2018-it-failure.html "Bank of England fines former TSB executive over 2018 IT failure") in a matter of days.

Analysts noted that, importantly, the Fed would accept collateral at par rather than marking to market, allowing banks to borrow [funds without having to sell](https://www.financedigest.com/intercos-fund-shareholders-l-catterton-otpp-sell-6-stake-at-7-discount.html "Intercos fund shareholders L Catterton, OTPP sell 6% stake at 7% discount") assets at a loss.

These are strong moves,” said Paul Ashworth, [head of North](https://www.financedigest.com/the-north-heads-south-to-mipim-en-masse-to-corner-new-real-estate-business-opportunities.html "The North heads South to MIPIM en masse to corner new real estate business opportunities") American economics at Capital Economics.

Rationally, this should be enough to stop any contagion from spreading and taking down more banks, which can happen in the blink of an eye in the [digital age,”](https://www.financedigest.com/how-can-traditional-banks-deliver-game-changing-innovation-in-the-digital-age.html "How can traditional banks deliver game-changing innovation in the digital age?") he added. But [contagion has always been more about irrational fear](https://www.financedigest.com/britains-market-rout-stokes-contagion-fears-around-the-globe.html "Britain’s market rout stokes contagion fears around the globe"), so we would stress that there is no guarantee this will work.

Investors reacted by sending U.S. S&P 500 stock futures up 1.6%, while Nasdaq futures rose 1.7%. EUROSTOXX 50 futures firmed 0.3%, and FTSE futures 0.1%.

MSCI’s broadest index of Asia-Pacific shares outside Japan climbed 1.4%, helped by [gains in China](https://www.financedigest.com/dollar-slips-yuan-gains-on-china-pmi-hot-inflation-lifts-euro.html "Dollar slips, yuan gains on China PMI; hot inflation lifts euro").

Chinese blue chips added 0.8% after Beijingsurprised by keeping the head of the central bank and finance minister in their posts on Sunday, prioritising continuity as economic challenges loom at home and abroad.

Japan’s Nikkei fell 1.6% as [bank stocks](https://www.financedigest.com/stocks-rise-after-bank-sale-fuels-investor-risk-appetite.html "Stocks rise after bank sale fuels investor risk appetite") took a beating, while South Korea rose 0.2%.

A NEW HEADACHE FOR THE FED

Such was the concern about financial stability, that investors speculated the [Fed would now be reluctant to rock the boat by lifting interest rates by a super-sized 50 basis points next week – and might not even hike](https://www.financedigest.com/dollar-falls-after-fed-raises-rates-forecasts-future-hike.html "Dollar falls after Fed raises rates, forecasts future hike") at all.

Fed fund futures surged to [price out any chance of a half-point hike](https://www.financedigest.com/investors-warn-big-consumer-firms-over-price-hikes-as-competitors-gain.html "Investors warn big consumer firms over price hikes as competitors gain"), compared with around 70% before the SVB news broke last week. Instead, futures [implied around a 14% chance the Fed](https://www.financedigest.com/stocks-tumble-dollar-rallies-as-soaring-u-s-inflation-implies-an-aggressive-fed.html "Stocks tumble, dollar rallies as soaring U.S. inflation implies an aggressive Fed") would stand pat.

The implied peak for rates came all the way down to 5.08%, from 5.69% last Wednesday, and markets were back to [pricing in rate cuts](https://www.financedigest.com/tesla-posts-record-quarterly-deliveries-after-price-cuts-up-4-from-q4.html "Tesla posts record quarterly deliveries after price cuts, up 4% from Q4") by the end of the year.

In light of the stress in the banking system, we no longer expect the FOMC to [deliver a rate hike](https://www.financedigest.com/stocks-falter-as-economic-worries-nag-nz-delivers-big-rate-hike.html "Stocks falter as economic worries nag, NZ delivers big rate hike") at its next meeting on March 22,” wrote analysts at Goldman Sachs.

We have left unchanged our [expectation that the FOMC will deliver 25bp hikes](https://www.financedigest.com/ecbs-makhlouf-expects-50-bps-rate-hike-in-december.html "ECB’s Makhlouf expects 50 bps rate hike in December") in May, June, and July and now expect a 5.25-5.5% terminal rate, though we see considerable uncertainty about the path.

Such talk, combined with the shift to safety, saw [yields on two-year Treasuries](https://www.financedigest.com/wall-street-drops-treasury-yields-gyrate-on-fed-chairman-powells-remarks.html "Wall Street drops, Treasury yields gyrate on Fed Chairman Powell’s remarks") tumble a further 17 basis points to 4.42%, a world away from last week’s 5.08% peak.

Yields were now down 66 basis points in just three sessions, a drop not [seen since the Black Monday market](https://www.financedigest.com/analysis-ecb-seen-struggling-to-keep-market-on-side-after-mixed-messages.html "Analysis-ECB seen struggling to keep market on side after mixed messages") crash in 1987.

Longer-dated yields, however, [climbed and the curve steepened as inflation](https://www.financedigest.com/stocks-climb-yields-fall-with-dollar-on-inflation-data.html "Stocks climb, yields fall with dollar on inflation data") remained a clear concern.

Much will depend on what U.S. [consumer price](https://www.financedigest.com/analysis-to-raise-prices-or-not-consumer-goods-makers-weigh-bets-on-buyer-strength.html "Analysis-To raise prices or not? Consumer goods makers weigh bets on buyer strength") figures reveal on Tuesday, with an obvious risk that a high reading will pile pressure on the Fed to hike aggressively even with the financial system under strain.

The European Central [Bank meets on Thursday and is still widely expected to lift](https://www.financedigest.com/asian-stocks-rally-as-bank-jitters-calm-alibaba-lifts-mood.html "Asian stocks rally as bank jitters calm, Alibaba lifts mood") its rates by 50 basis points and to flag more tightening ahead, though it will now have to take financial stability into account.

In currency markets, the dollar fell 0.9% on the safe-haven Japanese yen to 133.78, and 0.6% on the [Swiss franc](https://www.financedigest.com/swiss-franc-grapples-with-safe-haven-identity-crisis-after-credit-suisse.html "Swiss franc grapples with safe-haven identity crisis after Credit Suisse"). The [euro firmed](https://www.financedigest.com/europe-power-firms-need-1-5-trillion-euros-in-margin-calls-equinor-says.html "Europe power firms need 1.5 trillion euros in margin calls, Equinor says") 0.8% to $1.0735 as short-term U.S. yields plunged.

Gold [climbed almost](https://www.financedigest.com/oil-climbs-almost-3-as-recession-fears-begin-to-fade.html "Oil climbs almost 3% as recession fears begin to fade") 1% to $1,885 an ounce, having jumped 2% on Friday. \[GOL/\]

[Oil prices](https://www.financedigest.com/oil-prices-stable-heading-for-weekly-gain.html "Oil prices stable, heading for weekly gain") swung from down to up, with Brent adding 20 cents to $82.98 a barrel, while U.S. crude [gained 26 cents](https://www.financedigest.com/survey-only-7-per-cent-of-businesses-gdpr-compliant-as-deadline-looms-data-privacy-gains-prominence.html "Survey: Only 7 per cent of businesses GDPR-compliant as deadline looms, data privacy gains prominence") to $76.94 per barrel.

(Reporting by Wayne Cole; Editing by Sam Holmes and Jacqueline Wong)


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