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A look at the day ahead in U.S. and global markets

By Mike Dolan, Editor-At-Large, Financial Industry and Financial Markets

Bombarded by incoming corporate earnings updates and increasingly wary of tense geopolitics, world markets appear to have turned sour again on financial stocks as the full extent of March bank stress unfolds.

Shares in First Republic Bank, one of the most hit regional banks during last month’s blowup, sank 22% ahead of Tuesday’s open after it said deposits plunged by more than $100 billion in the first quarter – adding it aims to restructure its balance sheet and lay off up to a quarter of staff.

The Charging Bull or Wall Street Bull is pictured in the Manhattan borough of New York City, New York, U.S., January 16, 2019. REUTERS/Carlo Allegri

Although First Republic said deposit flight had stabilised since quarter-end, the echo of the March crisis reverberated around other regional banks and global banking stocks at large.

UBS shares were down almost 3% after it said it had set aside more money to draw a line under its involvement in toxic mortgages, halving its first-quarter profit as it prepares to swallow fallen rival Credit Suisse.

European bank stock indices fell 2%. Spain’s Santander fell almost 4% despite reporting higher profits and Germany’s Deutsche Bank fell 3% ahead of its results later in the weekly.

Ironically, the latest banking wobble comes as the world’s top central banks said they will reduce the frequency of their dollar swap operations with the U.S. Federal Reserve from May 1 as last month’s volatility in financial markets had receded.

But the new bank rumble, heightened political tensions between Western powers and the China/Russia alliance and nerves about the standoff over the U.S. government debt ceiling have all fed simmering investor anxiety this week.

Although the euro has been lifted against the dollar by increasingly hawkish rhetoric by European Central Bank officials, it’s the Swiss franc which is leading European currencies higher – hovering close to its best levels against the U.S. currency in more than two years.

With the Bank of Japan expected to double down on its easy monetary policy stance later this week, the Swiss franc is also testing its strongest levels against the yen in at least eight years.

Chinese stocks fell for the fifth straight session, meantime, and the yuan fell to its lowest against the euro since September 2021. 

With all the uptick in stress and a weak manufacturing survey from the Dallas Federal Reserve on Monday, U.S. Treasury yields fell back and futures markets upped the chances of Fed rate cuts later in the year. The debt ceiling jitters smouldered in the background as Republicans tried to push their new spending cut plan through Congress.

One-month Treasury bill yields, which had plummeted over the past week as investors tried to avoid 3-month bills likely to get caught in any government funding crunch over the issue, pushed back slightly higher on Tuesday.

And with Wall St now awaiting a torrent of profit updates later today, including mega caps Microsoft and Alphabet after the bell, stock futures were half a percent in the red.