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Morning bid: Bank anger persists, troubling Europe

A look at the coming days in US and global markets from Mike Dolan

After a week of sweeping interest rate hikes in a simmering bank crisis, market concerns remain about the state of the financial system at the end of the first quarter.

How much economic damage the banking scare will do on both sides of the Atlantic is now a key question for policymakers, despite the latest round of rate hikes now expected to be at or near the end of their tightening cycles.

On that score, Europe’s first March early business surveys show no signs of abating yet – if anything they show the economy is picking up steam again just as the bank shock wore off. And the brisk start to the year for major economies was also underlined by impressive British retail numbers.

It confuses the policy picture even more as it comes up against continuing jitters about recent bank failures, whether more stress is to come, widespread depositor uncertainty and how regulators respond.

US regional bank stocks fell again on Thursday, with the KBW Regional Bank Index (.KRX) down 3%, as Treasury Secretary Janet Yellen tried to assure that the public’s deposits were safe, ahead of any crisis. promised the firepower to fight it – a day when it deregulated the markets. The talk of blanket insurance of all the depositors was not being considered.

But the level of ongoing stress was evident in the latest data from the Federal Reserve on emergency lending to banks, which continued the massive expansion of debt and now includes official foreign borrowing.

The Fed reported discount window borrowing, its main source of emergency loans, declined from a record $152.9 billion last week to $110.2 billion as of Wednesday.

But banks increased lending under the Fed’s newly launched bank term funding program to $53.7 billion – nearly 5 times the first outing last week. The Fed also reported that loans to foreign central banks increased from zero to $60 billion on March 15 – suggesting a growing need for dollar liquidity abroad.

European bank shares fell 3% early Friday, with Deutsche Bank (DBKGn.DE) shares down for a third day — down 5% amid rising market costs to insure against the risk of default.

European Central Bank President Christine Lagarde is due to attend Friday’s EU summit in Brussels and update leaders on the state of affairs in the financial system.

Standard Chartered’s (STAN.L) chief executive Bill Winters said on Friday that Credit Suisse’s (CSGN.S) $17 billion in additional Tier 1 bonds expired late last week, with “profound” implications for global bank regulations. The Fed’s move to guarantee uninsured deposits posed a “moral hazard”.

As part of the deal to take over Credit Suisse by UBS (UBSG.S) late last week, the Swiss regulator determined that Credit Suisse’s AT1 bonds would be written down to zero.

Banking stress on top, geopolitics overshadowed banks. The ECB is pressuring Austria’s Raiffeisen (RBIV.VI) to reduce its highly profitable business in Russia.

Broader markets were lower in Asia and Europe and US stock futures were again in the red ahead of the open.

With a less than 50% chance of another Fed rate hike this cycle, futures now see nearly 80 basis points of price cuts through year-end. The two-year Treasury yield slipped below 3.70% – down 140bp from peaks just over two weeks ago.

Torn amid speculation of a rate cut and a potential safe-haven demand from any further bursts in banks, the dollar rose – with fresh European concerns pulling back the euro in particular.

Elsewhere, shares of Block (SQ.N) plunged nearly 15% on Thursday after Hindenburg Research disclosed its short positions in the company. Crypto exchange Coinbase Global (COIN.O) suffered a 14% loss as the US Securities and Exchange Commission threatened to sue the company.

Key developments that could provide direction to US markets later on Friday:

* March Flash Business Survey for the United States and around the world. US Feb durable goods orders. canada mass retailing

* St. Louis Federal Reserve President James Bullard speaks

* EU summit in Brussels, where Christine Lagarde, president of the European Central Bank, attended; Bank of England policymaker Catherine Mann speaks in Washington

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by Mike Dolan, Christina Fincher [email protected] edited by. Twitter: @reutersMikeD

Our Standards: The Thomson Reuters Trust Principles.

Opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and freedom from bias under the Trust Principles.


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