Bank Stocks Fall, Markets Await Powell Comments

Rates rangebound as markets await tomorrow’s data, Powell speech. Swap rates and Treasury yields were mixed across a flattening curve today, the 2-year yield cementing its climb over the 5% mark to 5.05% while the 10-year yield was little changed at 4.32%. Markets are largely awaiting Chair Powell’s speech on Friday, while tomorrow will feature the latest PMI data, new homes sales, and mortgage application figures. Today’s Richmond manufacturing data came in slightly above the estimate of -10 at -7.

More bank downgrades. Bank stocks fell today after S&P announced several regional bank downgrades, though concerns appear limited. S&P said that the five banks it downgraded have stable outlooks, while 90% of all banks covered by S&P are stable. S&P added some positive comments in light of the downgrades, stating “Profitability will likely worsen further in 2024, but we still expect most rated banks to generate a healthy level of capital through earnings retention.” The KRE did decline substantially on the day, however, falling 2.86%.

China tries to protect Yuan. The Chinese Yuan has been under pressure lately following central bank rate cuts and broader credit concerns stemming from the Chinese property sector. To support the currency, China is taking measures to “squeeze” traders betting on Yuan weakness and set the daily Yuan/Dollar exchange rate fixing below expectations today (7.1992 per Dollar vs 7.3103 estimate). Given economic troubles, however, Yuan weakness may be unavoidable as rates are cut and stimulus measures taken.