Just a day after Wall Street breathed a sigh of relief with the acquisition of First Republic Bank, a selloff in US regional lenders fueled renewed anxiety over financial stability, sinking stocks across the board and spurring a flight to the safest corners of the market.
(Bloomberg) — Just a day after Wall Street breathed a sigh of relief with the acquisition of First Republic Bank, a selloff in US regional lenders fueled renewed anxiety over financial stability, sinking stocks across the board and spurring a flight to the safest corners of the market.
For many traders, the timing couldn’t be worse.
On the eve of the Federal Reserve decision, multiple volatility halts in PacWest Bancorp and Western Alliance Bancorp were seen as disturbing to say the least. Both shares were down at least 20%. The financial industry weighed heavily on the S&P 500, which sank almost 2% at one point before trimming losses.
“Wall Street is quickly hitting the sell button as banking turmoil appears it is not going away anytime soon,” said Ed Moya, senior market analyst at Oanda. “Risk appetite did not stand a chance as traders focused on lingering doubts over the regional banks, rising recession odds, and growing risks that the US could default on its debt next month.”
The rout in banks only deepened a sense of uneasiness among investors about the Fed’s next steps. In addition to the financial strains, officials are caught between stubbornly high inflation and data pointing to an economic slowdown — such as Tuesday’s JOLTS record of job openings that fell to lowest in nearly two years.
Dovish Bias
Those factors combined with the brewing angst over the US debt ceiling discussions reinforced bets on a more dovish central bank.
While swaps are still pricing in a quarter-point Fed hike Wednesday, traders have trimmed their bets on a further rate increase — while amping up wagers on cuts before the year is over.
With all those elements in play, it shouldn’t come as a surprise that Treasuries are getting bid — especially after Monday’s selloff. Two-year yields plunged as much as 21 basis points to below 4%.
Meantime, Treasury bill yields for June topped 5% after Janet Yellen warned the Treasury could run out of cash as soon as next month.
Corporate Highlights:
- Morgan Stanley is preparing a fresh round of job cuts amid a renewed focus on expenses as recession fears delay a rebound in dealmaking.
- Uber Technologies Inc. reported earnings that beat analysts’ estimates, showing that consumers continue to spend more on rides and food takeout.
- Pfizer Inc.’s profit and revenue outpaced analysts’ expectations as demand for its pandemic products persisted.
- Marriott International Inc. reported earnings that beat expectations as consumer demand for vacations continued to make up for slower business travel.
- Tesla Inc. has slightly raised prices of its Model 3 sedan and Model Y sports utility vehicle in the US and China, as the electric vehicle pioneer continues to tweak its pricing policy.
Key events this week:
- ADP employment, S&P global US services PMI, ISM services, Wednesday
- Fed Chair Jerome Powell holds news conference following rate decision, Wednesday
- US initial jobless claims, trade balance, Thursday
- European Central Bank rate decision, followed by ECB President Christine Lagarde’s news conference, Thursday
- US unemployment, nonfarm payrolls, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 fell 1.4% as of 2:26 p.m. New York time
- The Nasdaq 100 fell 1%
- The Dow Jones Industrial Average fell 1.3%
- The MSCI World index fell 1.1%
Currencies
- The Bloomberg Dollar Spot Index fell 0.1%
- The euro rose 0.2% to $1.0998
- The British pound fell 0.2% to $1.2469
- The Japanese yen rose 0.7% to 136.56 per dollar
Cryptocurrencies
- Bitcoin rose 3.2% to $28,582.27
- Ether rose 2.9% to $1,860.65
Bonds
- The yield on 10-year Treasuries declined 13 basis points to 3.44%
- Germany’s 10-year yield declined five basis points to 2.26%
- Britain’s 10-year yield declined five basis points to 3.67%
Commodities
- West Texas Intermediate crude fell 5.5% to $71.53 a barrel
- Gold futures rose 1.6% to $2,023.90 an ounce
This story was produced with the assistance of Bloomberg Automation.
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