Wall Street stocks tumbled on Tuesday, hit by fresh jitters about the health of US regional banks, downbeat economic news and caution ahead of central bank meetings this week.
Wall Street’s benchmark S&P 500 was down 1.6 per cent in New York while the tech-heavy Nasdaq Composite fell 1.4 per cent. In Europe, the pan-European Stoxx 600 shed 1.3 per cent, with the Cac 40 in Paris down 1.5 per cent.
US regional banks were in the spotlight in New York following news on Monday that US regulators closed down First Republic and agreed to sell $93.5bn of its deposits and most assets to JPMorgan Chase.
PacWest Bancorp plunged as much as 25 per cent and Western Alliance Bancorp shed 20 per cent. The KBW Regional Banking index lost 5.9 per cent, on track for its worst session since March 13, days after Silicon Valley Bank collapsed.
“It’s one domino after the next at the moment. The bears are moving on to the next place to short,” said Mark Dowding, chief investment officer at Bluebay Asset Management.
Investors also turned cautious on the outlook for interest rates as the Federal Reserve and European Central Bank hold policy meetings this week.
The Fed is set to announce its decision on rates this Wednesday and the market is currently pricing in a 0.25 percentage point increase, to a range of 5 to 5.25 per cent.
But consensus is weaker on what will happen next. “The main focus of the Fed tomorrow will be on whether they give any hints of forward guidance at all,” said Jim Reid, managing director at Deutsche Bank.
Data on Tuesday showed US job openings in March fell to the lowest level in almost two years, in a possible sign that higher interest rates are beginning to help cool the labour market.
Meanwhile, Treasury secretary Janet Yellen warned on Monday that the US government risks hitting its debt ceiling — the legal limit on federal borrowing — as soon as June 1.
US government debt rallied hard, with the yield on interest rate-sensitive two-year Treasuries down 0.19 percentage points at 3.94 per cent. The yield on the 10-year Treasury fell 0.15 percentage points at 3.42 per cent.
In Europe stocks were lower as rising eurozone inflation data raised investors’ concerns that the ECB would increase interest rates this week.
The falls came after reports that eurozone inflation accelerated to 7 per cent in April, up from 6.9 per cent in the previous month, its first increase in half a year. The reading was slightly above the no-change forecast by economists polled by Reuters.
“This is a clear invitation for the ECB to continue hiking interest rates,” said Carsten Brzeski, chief eurozone economist at ING.
The ECB will decide on Thursday, with the market mainly pricing in a rise of 0.25 percentage points, from 3 per cent. Investors are also expecting more increases this year.
A separate survey from the ECB showed that demand for loans from eurozone businesses had fallen at the fastest rate since the 2008 financial crisis.
The FTSE 100 lost 1.2 per cent, as investors grew more cautious in response to falling oil stocks such as BP and Total. BP shares dropped 3.3 per cent after the UK energy group announced it was slowing the pace of its share buyback scheme.
HSBC posted strong corporate earnings, which sent its shares up 3.3 per cent.
Asian trading was mixed on Tuesday, with Hong Kong’s benchmark Hang Seng index rising 0.2 per cent and Japan’s Topix falling 0.11 per cent. Markets in China remained closed for Golden Week.
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