European Open: Sentiment improves as contagion fears from SVB collapse subside

Asian Indices:

Australia's ASX 200 index fell by -35.9 points (-0.5%) and currently trades at 7,108.80
Japan's Nikkei 225 index has fallen by -426.37 points (-1.51%) and currently trades at 27,717.60
Hong Kong's Hang Seng index has risen by 436.8 points (2.26%) and currently trades at 19,756.72
China's A50 Index has risen by 115.65 points (0.89%) and currently trades at 13,081.05

UK and Europe:

UK's FTSE 100 futures are currently down -1 points (-0.01%), the cash market is currently estimated to open at 7,747.35
Euro STOXX 50 futures are currently up 9 points (0.21%), the cash market is currently estimated to open at 4,238.53
Germany's DAX futures are currently up 52 points (0.34%), the cash market is currently estimated to open at 15,479.97

US Futures:

DJI futures are currently up 382 points (1.2%)
S&P 500 futures are currently up 63.75 points (1.65%)
Nasdaq 100 futures are currently up 203.5 points (1.72%)

Sentiment remained fragile at the beginning of the Asian trade following Friday’s strong selloff, induced by the implosion of SVB (Silicon Valley Bank)
Fears of contagion within the financial system was the key driver of markets on Friday, although these have been reduced somewhat on the confirmation that clients deposits are guaranteed
The Fed, Treasury department and FDIC (Federal Deposit Insurance Corp) issued a joint statement to restore confidence in the banking system and confirm deposits would be guaranteed and not to be covered by tax payers
US equity index rose over 1.5% during Asian trade on the news that deposits are guaranteed, and the reduced chance of a 50bp Fed hike
The odds of a 50bp Fed hike next week have been reduced to 39.5% (down form over 70% last week) according to Fed Fund futures, which now place a 60.5% chance of a 25bp hike
However, some analysts are now calling for the Fed to hold rates at their next meeting and to hike by 25bp in May and June
The US dollar index (DXY) is also trading lower for a third day and the 2-year bond yield is below 4.4%, having fallen from its 14-year high of 5.085% set last week
AUD and NZD is the strongest major currencies in light of improved sentiment whilst USD and CHF are the weakest
Gold continued to attract safe-haven flows and rallied to just shy of $1900 before pulling back to 1883

FTSE 100 daily chart:

Friday was the worst day for the FTSE 100 since late September, although its futures contract is effectively flat to suggest the cash index will not gap much lower at the open today. The FTSE closed beneath the lower Bollinger band, yet found support above the 2019 and 2020 highs. Given that Friday’s risk-off moves appear to be an over-reaction, we suspect that the FTSE could be set to rally today. Whether it can fully recoup all of Friday’s losses remains to be seen, but an initial move to 7800 seems plausible.

Economic events up next (Times in GMT)

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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