Indices dip on recession fears, Gold rallies

US Indices opened weak and remained under pressure by mid-day. First Republic Bank's depositor flight reminded the market of banking sector nerves. Consumer confidence readings were worse than expected and data suggests the manufacturing sector is under pressure. Corporate earnings have been mixed, and Tech sector giants Alphabet and Microsoft due to report after the close today.

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Indices dip, Dollar up

• At the time of writing, the broad S&P 500 and NASDAQ indices were down by 1.3% and 1.5% respectively, at 4084 and 11,853
• The VIX, Wall Street’s fear index, moved up to its highest level in roughly two weeks, to 18.4
• The dollar index was up 0.5% at 101.6
• Yields on 2- and 10-year Treasuries fell to 4.00% and 3.40%, respectively

Gold higher, oil dips

• Gold prices rose back over the $2,000 per ounce mark, another sign of building pessimism
• Crude oil prices fell 2.5% to $76.8 per barrel
• The grain and oilseed sector were lower

Banks tighten lending, First Republic falls (again)

• Banks are tightening lending requirements, despite liquidity being on offer from the Federal Reserve, in turn putting the squeeze on domestic economic activity
• The Federal Reserve started offering dollar liquidity to banks via its daily tenders in late March, as bank stress became evident – while little used it offered a welcome safety net
• This program is now returning to normal, now, indicating that the banking scare is behind us
• Nonetheless, money continues to flow out of the regional banks at an alarming rate chasing greater returns and security
• An early casualty, First Republic Bank, saw its shares fall over 40% at the time of writing, after it revealed that depositors had withdrawn more than $100 billion

Consumer sentiment dips

• US consumer confidence fell sharply in April according to today's report from the Conference Board, the lowest reading seen since July
• April's Consumer Confidence Index (CCI) fell to 101.3, and March was revised down slightly to 104.0 (readings under 100 indicate a negative viewpoint)
• The Present Situation portion of the index improved slightly, though the forward looking Consumer Expectations score declined from March

Manufacturing sector struggles

• Today’s Richmond Fed Manufacturing Index showed worsening conditions, declining to -10 in April from the -5 in March (covering activity in Maryland, Virginia, DC, both Carolinas, and most of West Virginia)
• This followed yesterday's worse-than-expected reading from the Dallas Fed's Manufacturing Index, at the lowest since last July
• The important new orders portion of both surveys continue to show negative readings
• Adding on to today's negative manufacturing news, 3M this morning announced layoffs of 6,000 jobs due to slowing global demand for goods

Service sector shows mixed results

• The Richmond Fed's Services Index declined to -23 in April, its lowest level since June 2020
• Yesterday, the Dallas Fed's Service Index improved slightly to -14.4 in April from -18 in March (covering all activity in Texas)
• Although the negative readings still point to overall pessimism in the sector, an interesting takeaway was an easing of wage pressures from the month prior perhaps pointing to lessening inflation

US new home sales stronger, prices still rising

• US new home sales came in surprisingly high in March, the highest level seen in a year, at an annualized rate of 683,000 units, well above market expectations of 630,000
• Today's new home sales data showed a median sales price of $449,800 and an average sales price of $562,400, respectively increases of 3.2% and 9.9% on an annual basis
• The Federal Housing Finance Agency (FHFA) also released their February House Price Index this morning, showing prices climb by 0.46% month-on-month
• Housing prices dipped slightly from the peak in June and stagnated through the late summer and fall before unexpectedly perking back up in January and February
• Continuing low inventory of available homes has allowed prices to hold firm despite expectations by some of a sharp slowdown

Ukraine grain initiative ending?

• The Ukraine grain initiative continues to get a lot of talk, but not so much correlating concern in the marketplace as it once did.
• Russia demanded that the initiative only be extended 60 days in March, putting the deadline for renewal on May 18, but it appears to have little interest in extending the initiative that allows Ukraine to export grain unless the West eases sanctions against it

China tensions continue to build on Taiwan

• Reuters reports that British Foreign Minister James Cleverly will challenge China this evening in a scheduled speech to be more transparent about its reasons for the biggest peace time build-up of military strength in history, indicating that the secrecy behind it could lead to “a tragic miscalculation” leading to war
• Cleverly is expected to say that isolating China would be a mistake, but at the same time he fears that China’s secrecy can lead to misunderstanding that can lead to unnecessary conflict
• Much of the tension focuses on a rising military presence around Taiwan
• A leading diplomat in the European Union recently called for the EU’s navy to being patrolling the Taiwan Strait, and South Korea’s president also stated that the Taiwan question is a global issue – not just an internal Chinese issue

Guest analysis by Mike Castle, Market Intelligence Analyst

Contact: mike.castle@stonex.com