Morning Report: Markets bounce on Silicon Valley Bank deal

Vital Statistics:

	Last	Change
S&P futures	4,027	25.25
Oil (WTI)	70.71	1.44
10 year government bond yield		3.50%
30 year fixed rate mortgage		6.30%

Stocks are higher this morning after First Citizens reached a deal to buy parts of Silicon Valley Bank. Bonds and MBS are down.

First Citizens Bancshares reached a deal with the FDIC to buy Silicon Valley Bank’s deposits and loans. The two banks are roughly the same size in terms of assets and loans. This deal is causing a rally in the regional banks this morning and bonds are getting clobbered. Deutsche Bank is also up this morning.

First Republic is rallying this morning on news that regulators are considering an additional lending facility.

Deposit outflows eased last week, as the top 25 banks gained about $120 billion in deposits, while 850 smaller banks lost $108 billion.

In the upcoming week, we will get housing prices via the FHFA and Case-Shiller numbers, consumer confidence, GDP, personal incomes and outlays, and the University of Michigan consumer sentiment which will have the inflationary expectations numbers. Note that GDP is the final revision of the fourth quarter numbers, so they probably won’t have much of an effect on markets. It is stale data.

Over the weekend, Minneapolis Fed President Neel Kashkari said that the chances of a recession have increased due to the turmoil in the banking sector. “It definitely brings us closer right now” — that was Minneapolis Fed President Neel Kashkari’s response to a question, during a interview, on whether the latest turmoil in the banking sector could bring the U.S. closer to a recession. “What’s unclear for us is how much of these banking stresses are leading to a widespread credit crunch. And then that credit crunch, just as you said, would then slow down the economy,” he said.

I discussed Neel Kashkari’s comments and also an interesting exchange between ex-Treasury Secretary Larry Summers and ex-Fed President Daniel Turullo in my weekly Substack piece. Check it out, and please consider subscribing.