Strong Earnings from Big Tech Firms Drive US Stock Futures Higher, First Republic Bank’s Deposit Drop Raises Concerns

　　

Make informed decisions with the most up-to-date and reliable financial data, exclusively provided by vtmarkets.com.

Big Tech earnings, led by Alphabet and Microsoft, boosted US stock futures on Tuesday evening. Dow Jones Industrial Average futures gained 0.1%, S&P 500 futures added 0.4%, and Nasdaq 100 futures increased by 1.2%. Microsoft beat Wall Street’s expectations in its latest quarter and posted strong revenue from its Intelligent Cloud business segment, driving shares up by 8%. Meanwhile, Google’s parent company Alphabet reported better-than-expected revenue and a profit in its cloud business for the first time, causing shares to rise by over 2%.

However, regular trading on Tuesday saw the Dow fall by 1%, the S&P 500 finish 1.6% lower, and the Nasdaq Composite dropping nearly 2%. This was partly due to First Republic Bank reporting a 40% decrease in deposits to $104.5 billion in the first quarter, which reignited concerns about the broader banking sector and put pressure on the major averages.

Investors will continue to monitor earnings results from travel companies such as Boeing, Hilton Worldwide, Spirit Airlines, and Travel + Leisure before the bell on Wednesday. Additionally, durable goods and mortgage purchase data will be released on Wednesday morning, followed by the latest GDP update on Thursday and the Personal Consumption Expenditures Price Index – the Fed’s preferred inflation gauge – on Friday.

On Tuesday, all sectors of the stock market experienced a price drop, with the biggest losers being the information technology and materials sectors, down 2.09% and 2.15%, respectively. The consumer discretionary sector also suffered a significant drop of 2.05%, while the utilities and consumer staples sectors fared slightly better with only a 0.10% and 0.12% decline, respectively.

The decline was driven by a combination of economic and geopolitical risks, including concerns about central banks’ inflation fights, as well as uncertainty surrounding the ongoing banking crisis. The financials sector was among the hardest hit, down 1.76%, as investors worried about the potential impact of the crisis on the broader banking sector.

Major Pair Movement

Investors across markets and regions experienced a bleak day as a multitude of economic and geopolitical risks caused them to seek refuge in the US dollar and yen. Central banks’ fights against inflation were seen as contributing to the growing risks that investors were concerned about.

First Republic Bank’s quarterly report, released on Monday, caused alarm in the markets, revealing the precarious state of the bank after March’s banking crisis. Investors are now speculating on the possibility of the acute phase of the banking crisis turning into a chronic issue, with the Federal Reserve nearing the end of its aggressive rate-hiking cycle amid an increased risk of a recession.

This flight to safety was reflected in the 20 basis point drop in the 2-year Treasury yield and a 39 basis point surge in one-month T-bill rates. Investors were pricing in 70 basis points of rate cuts before year-end, with a 25 basis point hike next week slightly less favored. In addition, the 5-year U.S. sovereign CDS soared to its highest level since 2011, now above Spain’s, as the debt ceiling remained unresolved.

EUR/USD decreased by 0.64% as investors moved their funds to the safe-haven dollar causing the currency to dive from its Asia trading peak at 1.1068, reaching Monday’s 1.0966 lows on EBS. It is expected that the ECB will hike by 25bp next week, with a slightly lower Q3 peak, and a 25bp rate cut priced by February.

The USD/JPY fell 0.38%, indicating the unwinding of yen-funded trades, as the BoJ’s easy policies leave no room for added accommodation, unlike other central banks seen to eventually cut rates. The GBP/USD settled near its lows, while the AUD/USD fell 0.88%. The data calendar is set to heat up on Thursday and Friday ahead of the Fed and ECB meetings next week.

Make informed decisions with the most up-to-date and reliable financial data, exclusively provided by vtmarkets.com.