21.03.2023 01:16 PM
US premarket on March 21, 2023

US and European stock index futures have increased for a second straight day, thanks to regulatory measures increasing confidence in the financial system. S&P 500 futures rose by 0.3%, while NASDAQ futures gained 0.5%. In Europe, the Stoxx Europe 600 increased by 1.4% thanks to its bank index advancing by 3.5%.

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Rumors are currently circulating in the market that US officials are exploring ways to temporarily insure all bank deposits, which has had a positive effect on the banking sector. Shares of First Republic Bank increased by 20% in premarket trading. However, such strong growth was caused by JPMorgan's offer to help the struggling lender. Shares of other regional banks also jumped.

Investors are clearly tiptoeing back to riskier assets after last week's financial turmoil, reversing the flash sell-off of early Monday that followed the takeover of Credit Suisse Group AG. Market expectations have notably changed since the Fed and five other central banks announced a joint action last Sunday to increase liquidity. Many people are now certain that the FOMC will pause the hike cycle as soon as tomorrow's meeting. Should that be the case, that would be a bullish signal for the whole stock market.

However, for the most part, money markets are betting on a hike of about a quarter of a point. Swap traders now expect the Fed funds rate to be around 4% at the end of the year, down from about 6% about two weeks ago.

Amid this sentiment, even the riskiest bank securities are rising, as assurances of support from regulators are resonating among investors. Improving market sentiment also affected government bonds, with the yield on 10-year U.S. Treasuries rising by about four basis points. The yield on two-year U.S. Treasury notes, which is sensitive to policy changes, increased by 14 basis points.

In other news, Brent crude oil increased for a second straight day, while gold prices fell.

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On the technical side, pressure on risky assets continues to decline. The S&P 500 will only extend its upside movement if it surpasses $4,010, from where it could then move towards $4,038. Another key goal for bulls will be holding onto $4,064, which would allow to launch a new bullish trend. If the S&P 500 moves down amid lack of positive factors and demand, bulls must keep the index above $3,977. Otherwise, it would drop to $3,952, opening the way towards $3,923.

Jakub Novak,
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