Suderman Says: Risk-on thanks to sliding Bank stocks and interest rate uncertainty

Equity markets fell again today, with bank shares of First Republic and Credit Suisse leading the way lower. Investor focus remains on interest rates and the outside markets, especially now with the Fed meeting next week and expectations for rate hikes scaled back.

Bank bailouts continue …

• The country's largest lenders boosted First Republic yesterday with $30 billion in uninsured deposits but reality is settling in today, with that risk now spread around to the big banks and dominoes very likely to keep falling in the current bank run
• This same reality is looming for Credit Suisse, which got help from the Swiss Central Bank yesterday, but that's only seen as a band-aid by the market, on an institution plagued with bad hedge fund bets and scandals in recent years

… And markets dip on fears that bailouts might not work, or could curtail much needed rate rises

• At the time of writing, the broad S&P 500 index was down 1%, but off the day’s lows
• The VIX, Wall Street’s fear index, rose to 25 but still well off a recent high of 30
• The dollar index remains under pressure as the ECB is now seen as the more hawkish than the Fed currently, with the index trading near 104
• Yields on 2- and 10-year Treasuries traded at 3.94% and 3.41%, the lowest rates since September, perhaps indicating the bond investors think recession is on the cards

US economic data is gradually softening

• US economic data is weakening, as producers scale back output with consumer sentiment hit by rising interest rates
• Industrial Production was flat month-over month in February, compared to an estimate of 0.2% gain; previous month's figure were revised higher from 0.0% to be up 0.3%
• Capacity Utilization fell short at 78.0% in Feb, below expectations of 78.4%
• The Conference Board's leading index for US economic activity fell by 0.3% in February, with the index now down to 110.0 points after almost a full year of declines
• The University of Michigan's Consumer Sentiment Index came in at 63.4 points for March, less than the estimated 67.0 points; this was the first decline in their reading after three months of gains

Commodities fall, led by oil, on fears of weaker global demand

• Crude fell below $70 per barrel in New York for the first time since late 2021 and its headed for its worst weekly drop in almost a year as well, with the market facing its worst banking sector issues since the 2008 financial crisis
• Speculative money is thin in the grain sector as well, after funds dumped almost their entire net long position in corn over the past month.

China backs Russia?

• China switched strategies several weeks ago to go from giving the appearance of a silent bystander in world affairs to seeking the appearance of a leader in solving problems – and that includes the Ukraine war, considered here at length
• China has a vested interest in having a healthy Russia as a partner in its evolving battle with the West, and seeking a resolution that would make sure that Russia does not lose in the Ukraine
• President Xi Jinping is reportedly traveling to Moscow to visit with Russian President Putin in the near future, a major event in realpolitik
• China’s preferred plan that it proposed is a ceasefire while negotiations take place, with Russia maintaining possession of ground that it currently occupies in Ukraine
• That’s a non-starter for Ukraine and the West, as history argues that Russia has used this strategy in the past to regroup for its next assault
• The question now is, what will be China’s next option? Will it be to provide lethal aid to Russia amid reports that its troops are running out of ammunition and other needed weaponry?
• Chatter currently emerging from Washington suggests that the State Department is seeking support among other Allies to implement financial sanctions on China if it provides lethal support to Russia
• We can only speculate on what those sanctions might be, but it would likely imperil US trade with China, and further unsettle financial markets

Analysis by Arlan Suderman, Chief Commodities Economist

Contact: Arlan.Suderman@StoneX.com