Fed Day, Regional Bank Brouhaha Re-Emerges

Good morning contrarians! It is Wednesday, May 3. Fed day.

State of Play

Stocks sold off yesterday, but finished off the lows. The catalyst appears to have been renewed concerns about regional banks as the Regional Banking ETF (KRE 0.00%↑) declined by 6%. Trading was halted in PacWest (PACW 0.00%↑) and Western Alliance (WAL 0.00%↑) but financials sold off everywhere including the big banks like JPMorgan Chase (JPM 0.00%↑) and Bank of America (BAC 0.00%↑).

As of 0610 it doesn’t look like the concerns about regional banks have gone anywhere. In fact they have only intensified:

• The three most widely-cited ‘problem banks’ (that is the two aforementioned and Metropolitan Bank (MCB 0.00%↑) are moving lower in the pre-market. In the case of PACW by double digit percent;

• Stock futures more broadly aren’t moving much. S&P 500, Nasdaq, and Russell 2000 all roughly unchanged;

• Commodities continue to drop, with WTI crude oil down 2% to trade around $70/barrel. Copper is unchanged;

• Bonds are seeing renewed bids, with the yield on the 2-year down 4 basis points to 3.94%. The yield on the 10-year is also down 4bps to 3.40% (yields move inversely to prices);

• Cryptos are showing signs of life. In fact, Bitcoin led yesterday’s recovery and has been a leading indicator for risk going back to March. BTC is up 2% to trade around $28,600.