Banks cool down even more before Fed – another green day for stocks

US Treasury hit the brakes on banking crisis

Tuesday was the second straight day of gains for the market. The market rise occurred just as the Fed began its two-day meeting, which is widely anticipated to result in a 0.25 bps rate hike on Wednesday.

The S&P 500 increased on Tuesday, followed by a rise in bank stocks led by First Republic after US Treasury chief Janet Yellen announced greater support for banks. First Republic Bank soared more than 30% after Yellen stated that the US government would be willing to step in again and offer to help smaller banks in the case of bank runs, indicating that worries of a banking sector contagion are subsiding.

First republic bank 1D chart, source: tradingview.com

Other regional banks, including US Bancorp, Comerica Inc, and KeyCorp, all rose more than 9%. Moody’s elevated Tesla’s rating to invest, or Baa3, from junk category, noting the electric vehicle manufacturer’s conservative financial policies. The S&P 500 rose 1.1%, while the Dow Jones ended up 0.7%. Nasdaq rose 1.5%.

Dollar hit the pause waiting on Fed’s decision 

Traders speculated that financial stress may prevent the Fed and the BoE from rising rates much further, or at all, later in the week. As a result, the dollar recovered some of its early losses, while sterling declined. After days of market volatility owing to concerns over the viability of the worldwide financial system, investors are now focusing on a flurry of central bank events scheduled for this week.

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The dollar index ended flat down only by 0.06%. On Wednesday, when the Fed makes its monetary policy decision, the markets price in an 85% likelihood of a 25 bps rate rise. A few weeks ago, the Fed’s target overnight interest rate peaked at 5.5%, compared to its current level of about 4.8%.

The EUR/USD rose 0.41% to $1.0771. After statistics revealed that Britain reported a budget deficit of 20.4 billion pounds ($16.8 billion) in February, greatly above predictions, the value of the pound declined versus the dollar. Still though, sterling remained close to a seven-week high. GBP/USD closed down 0.46%.

Even before the current bout of volatility impacted on the Aussie, Australian central bank policymakers agreed to evaluate the argument for a rate halt at the April meeting. This speculation sent the AUD/USD down 0.72%.

Oil is successfully regaining its losses

Crude oil prices increased for a second consecutive day on Tuesday as thanks to financial crisis subsiding, enabling the industry focus on a probable weekly inventory decline in the world’s top oil consumer.

WTI crude closed up $1.69, or 2.5%, adding to Monday’s gain of 1.4%. The US crude is just a few cents below the $70 mark again. On Monday, WTI reached a low of $64.38 per barrel, a level seen first time since December 2021. Last week, the benchmark for US oil sank about $10 per barrel, or 13%.

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Brent crude traded in London closed higher by 2.1%, at $75.32 a barrel, adding to Monday’s 1.0% increase. The global crude benchmark fell to a 15-month low of $70.12 on Monday, following a 13% weekly decline.

With the danger cooling down, gold lost its safe haven power as well. Gold futures for April delivery closed 2% lower at $1943.7. Silver futures also closed the day on the back foot with a 0.54% loss.