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Wall Street notched strong gains in the previous session after a highly-anticipated inflation report showed a slowdown in February consumer prices growth, spurring hopes of a smaller rate hike at the conclusion of the Federal Reserve’s meeting next week.
After the recent collapse of SVB Financial and Signature Bank (NASDAQ:SBNY), assurances and emergency measures by U.S. authorities allayed worries about the health of other banks to some extent.
Regional banks extended gains to premarket trading on Wednesday after a strong rebound in the previous session.
First Republic Bank (NYSE:FRC) jumped nearly 13%, with peers Western Alliance (NYSE:WAL) Bancorp and PacWest Bancorp up 8.3% and 6.5%, respectively.
Big U.S. banks such as JPMorgan Chase & Co (NYSE:JPM), Citigroup (NYSE:C) and Bank of America Corp (NYSE:BAC) edged lower between 0.2% and 0.8%.
“But many banks are still trading significantly below the level they were at the start of the month, indicating that nervousness is still hanging around,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown, pointing to a recent downgrade of the banking sector by Moody’s (NYSE:MCO) Investors Service.
“The worry is that smaller banks sitting on large unrealised losses in their bond portfolios might not have sufficient capital buffers if there is a fast withdrawal of deposits.”
Shares of Charles Schwab (NYSE:SCHW) Corp climbed 4.5% premarket, a day after its chief executive said the bank and brokerage have enough liquidity and are not seeking capital or deals.
U.S. Treasury yields rose for the second straight day, with markets pricing in further monetary tightening by the Fed given sticky core inflation, albeit at a slower pace than previously thought.
Traders’ bets are biased towards a 25 basis point rate hike by the Fed in March, with rates seen peaking at just under 5% by June..
Investors are also awaiting another inflation report due at 8:30 am ET, which is expected to show a moderation in February’s producer prices growth both on a monthly and annual basis.
Retail sales data for February is also due at the same time and will be gauged for clues on whether the Fed’s rate hikes are cooling demand to the central bank’s satisfaction.
At 5:30 a.m. ET, Dow e-minis were down 171 points, or 0.53%, S&P 500 e-minis were down 19.25 points, or 0.49%, and Nasdaq 100 e-minis were down 51.75 points, or 0.42%.
