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FRC Shares Plunge Lower
US stocks have come under pressure mid-week as fears for the US banking sector returned to the spotlight yesterday. The headline move was shares in First Republic Bank tanking by over 50%. The decline came in response to news that deposits with the bank had plunged by around $100 billion last month as customers rushed to withdraw their capital, anticipating the potential collapse of the bank. On the back of the SVB collapse and Signature Bank forced closure from the Fed, FRC was widely pegged to be the next bank to fail.
Withdrawals Spiked Last Month
However, in an unprecedented move, a consortium of 11 US banks pooled together to offer the bank an emergency funding package which allowed it to avoid a liquidity crisis amidst the withdrawals. The package and the subsequent stabilisation of the banking sector saw bank managing to level out after its share price had collapsed from above $100 to around $11 in just a few weeks.
FRC shares had been underpinned by the $11 mark since late March but were seen breaking down to fresh lows yesterday as the news broke. FRC noted that withdrawals had mostly stabilised as of this month, though deposits are still falling slightly.
Despite the news around FRC, the majority of banking sector results reported so far this earnings season have been positive. JP Morgan and Citi were seen recording bumper profits in Q1 along with strong results from Morgan Stanley also. There was some undershooting from Goldman and State Street missed both earnings and revenues forecasts.
Downside Risks
The fear now is that the banking sector crisis is not over and has room to worsen. If the sell off in FRC continues, the bank will once again be knocking on the door of a liquidity crisis raising fears of collapse and prompting contagion fears around similar lenders. With this in mind, the coming days and weeks will be crucial as traders look to further banking sector Q1 results and monitor the story around FRC. Notably, if the sell-off does deepen and market focus returns to a potential further banking sector crisis, this might sway market pricing away from expecting a further hike from the Fed in coming weeks.
Technical Views
S&P 500
The latest test of the 4153.50 level has seen the index coming back under heavy selling pressure, reversing lower from the level. With momentum studies turned bearish, the focus is on a further decline from here with the bull channel lows and the 3910 level support the next demand area to watch.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.