LDN - Business

Futures slip on First Republic's deposit flight, mixed earnings

[April 25, 2023] By Sruthi Shankar and Ankika Biswas

(Reuters) -U.S. stock index futures fell on Tuesday as a plunge in deposits of regional lender First Republic Bank stoked concerns about the banking sector, while investors parsed through earnings reports for clues on the health of corporate America and the economy.

First Republic Bank tanked 21.5% in premarket trading after the beleaguered lender reported a more than $100 billion flight in deposits in the first quarter following the biggest banking crisis since 2008 last month.

Shares of regional banks PacWest Bancorp and Western Alliance Bancorp fell over 2% each.

The KBW Regional Banking index and the S&P 500 bank index have shed 22% and 9%, respectively, so far this year as the collapse of two mid-sized lenders last month wreaked havoc on the banking sector.

"Rising interest rates are worrying depositors that small- and mid-sized lenders are going to be facing increasing difficulties, that the business models are too heavily dependant on a low interest rate environment," said Stuart Cole, head macro economist at Equiti Capital.

"The risk is that the cost of this emergency funding proves too expensive for the smaller banks and the market deems them to be no longer profitable."

Investors are also concerned about the impact of elevated inflation and aggressive interest rate hikes by the Federal Reserve on company margins.

PepsiCo Inc rose 1.7% after raising its annual revenue and profit forecasts, while General Electric Co gained 1.4% on lifting the lower end of its full-year profit forecast.

United Parcel Service Inc slid 4.7% after the delivery firm forecast full-year revenue to be at the lower end of its earlier estimate as it grapples with a weakening economy. Peer FedEx Corp lost 2%.

[to top of second column]

A Wall Street sign is pictured outside the New York Stock Exchange in New York, October 28, 2013. REUTERS/Carlo Allegri/File Photo

McDonald's Corp's gained 0.8% after first-quarter sales blasted past estimates on higher menu prices and more customer visits, while Verizon Communications Inc lost 0.8% on missing first-quarter revenue estimates and reporting wireless subscriber losses.

In a busy week for earnings, 178 of the S&P 500 companies are expected to report first-quarter results. Analysts have largely maintained their forecast of a near-5% drop in first-quarter profit for S&P 500 companies through the start of the earnings season, according to Refinitiv data.

Earnings from trillion-dollar companies Alphabet Inc and Microsoft Corp due after market close on Tuesday will be at the top of investors' watch list.

At 7:24 a.m. ET, Dow e-minis were down 82 points, or 0.24%, S&P 500 e-minis were down 17 points, or 0.41%, and Nasdaq 100 e-minis were down 41.5 points, or 0.32%.

Investors are also awaiting the Fed's monetary policy decision in May for signals on the path of interest rates. Traders mostly expect the U.S. central bank to hike rates by 25 basis points next week and hold steady before cutting rates later this year.

Consumer Confidence Index for April and new home sales unit data for March are also on tap after the opening bell.

Among other stocks, Spotify Technology SA climbed 1.2% after first-quarter monthly active users crossed the half-billion mark for the first time, while 3M Co gained 1.7% on the industrial conglomerate's plans to slash about 6,000 positions globally.

(Reporting by Sruthi Shankar and Ankika Biswas in BengaluruEditing by Vinay Dwivedi)

Back to top