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Banks wobble again, Hindenburg hits Block, Eurozone PMIs - what's moving markets

Published 24/03/2023, 12:00
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By Geoffrey Smith 

Investing.com -- Banks are in the spotlight again, with Europe leading the way down after a mystery spike in Federal Reserve lending to other central banks. Payments company Block is the latest to feel the wrath of short-seller Hindenburg Research, and oil slumps as the Biden administration says it will take its time to refill the Strategic Petroleum Reserve.

1. Banks under pressure again amid spike in Fed lending

European banks slumped, as investors took fright at a gradual buildup of circumstantial evidence suggesting that the sector’s problems are far from over.

The Federal Reserve on Thursday reported a sharp spike to $60 billion in loans under its FIMA repo facility, which makes dollars available to overseas central banks in emergencies. While there is no confirmation of any connections, the reporting period covers the hasty deal to merge Credit Suisse (SIX:CSGN) with UBS (SIX:UBSG), its stronger local rival.  

UBS stock slumped on Friday after Bloomberg reported that both it and its new acquisition are under investigation in the U.S. on suspicion of having helped Russian oligarchs get around western sanctions.

Deutsche Bank (ETR:DBKGn) stock also fell 12% to a five-month low, while its credit default swap spreads widened sharply, without any obvious trigger (other than a two-decade history of reckless mismanagement which its current CEO appeared to have ended).

2. Hindenburg downs another

Fresh from its reverberating bet against India’s Adani Group, short-sellers Hindenburg Research landed a heavy blow against Block (NYSE:SQ), the payments company formerly known as Square.

Block stock was down another 4.7% in premarket by 06:00 ET (10:00 GMT) after losing 15% on Thursday in response to the report.

Hindenburg had accused the company, founded by ex-Twitter CEO Jack Dorsey, of systematically misleading its investors and clients and avoiding regulation. It highlighted the frequency with which rappers, in particular, boasted of using Block’s Cash App function for fraudulent or illegal purposes.

Block said it is considering legal action. Hindenburg’s action has ensured the question of how to sustain the heroic valuations of tech companies with little or no profitability at a time of high interest rates.  

3. Stocks set to open lower; regional banks down only a little

U.S. stocks are set to open lower again, reversing Thursday’s gains to put them on course for a negative week.  The spotlight will once again be on the banking sector, although the regional banks that have commanded so much attention over the last two weeks are down in premarket by far less than their European counterparts. The Fed’s weekly balance sheet showed that overall lending from the Fed’s facilities was broadly stable, albeit banks shifted more of their loans to the new and more lenient BTFP program.

By 06:20 ET (10:20 GMT), Dow Jones futures were down 267 points, or 0.8%, while S&P 500 futures were down 0.7% and Nasdaq 100 futures were down 0.4%.

With no major earnings due, and with Capitol Hill also set to quieten down after Thursday’s fireworks with TikTok CEO Shou Zi Chew, trading is likely to be sentiment-driven.

4. Eurozone economy strengthened in March; U.S. durable goods due

The Eurozone economy picked up in March, with S&P’s composite PMI hitting its highest level since June. That was due overwhelmingly to the services sector, which performed much better than expected in both France and Germany.

Manufacturing, meanwhile, remained in contractionary territory, with the end of supply chain disruptions meaning that factories are working through a dwindling pile of backlogs at a faster rate.

The U.K. PMI, by contrast, was not as strong as February’s red-hot inflation print and the Bank of England’s latest interest rate hike might have you believe.  

5. Crude slumps as U.S. says it won't rush to refill SPR

Crude oil prices fell again after the U.S. government backed away from its intention to immediately refill the Strategic Petroleum Reserve, which it had depleted last year to take the edge off spiking world energy prices.

By 06:30 ET, U.S. crude futures were down 3.6% at $67.44 a barrel, their lowest in a week, while Brent crude was down 3.4% at $73.33 a barrel.

The administration is aiming to buy barrels for the SPR at around $70, but Energy Secretary Jennifer Granholm told Congress on Thursday it will be “difficult for us to take advantage” of the current market weakness, adding “we will continue to look for that low price into the future because we intend to be able to save the taxpayer dollars."

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