Wall Street stocks opened lower on Thursday as renewed turbulence in the US regional banking sector undermined optimism that the Federal Reserve would begin to cut interest rates.
The benchmark S&P 500 lost 0.6 per cent in New York while the tech-heavy Nasdaq Composite was down 0.3 per cent. Pre-market US trading was choppy, indicating traders were weighing conflicting news.
US initial jobless claims hit 264,000 on a seasonally adjusted basis in the week to May 6, marking their highest level since late October 2021. That boosted traders’ belief that the Fed may soon halt its rate-tightening campaign as the economy cooled.
But investors’ mood clouded as fears over the health of US regional bank stocks returned. PacWest shares fell 28.8 per cent after the bank announced it lost almost a tenth of its deposits in the first week of May. Western Alliance lost 3.8 per cent and KeyCorp fell 3.3 per cent. The KBW Regional Banking index fell 2.3 per cent.
The souring sentiment spread to European markets, with the region-wide Stoxx 600 reversing its early morning gains to trade 0.3 per cent lower. Germany’s Dax fell 0.7 per cent and France’s Cac 40 was down 0.2 per cent.
London’s FTSE 100 slid 0.6 per cent after the Bank of England raised its benchmark rate for the 12th consecutive time, by 0.25 percentage points to 4.5 per cent, as had been anticipated by markets. Traders expect BoE rates to peak at 4.75 per cent in September.
However, when deciding on future monetary policy, the central bank “will be held captive to forthcoming growth, labour market, and inflation data”, said Sanjay Raja, chief UK economist at Deutsche Bank Research.
The pound edged down against the dollar on the day of the announcement, to trade 0.6 per cent lower at $1.251.
Meanwhile, uncertainty over the US debt ceiling continues to cast a shadow over markets after US Treasury secretary Janet Yellen warned earlier this month that the government could run out of money as soon as June 1.
Former US president Donald Trump on Wednesday urged Republican lawmakers to let the US default on its debts unless Democrats capitulate to demands for “massive” spending cuts. The dollar rose 0.4 per cent to $101.927 against a basket of six other currencies.
The yield on interest rate-sensitive two-year Treasuries rose 0.07 percentage points to 3.82 per cent, while the yield on 10-year notes was down 0.07 percentage points at 3.36 per cent.
Asian equities struggled for direction after weak inflation data in China pointed to weakening demand, but traders hoped the similarly soft US data would support stock market valuations. Chinese consumer price inflation slowed to its weakest level in two years.
Hong Kong’s Hang Seng index shed 0.2 per cent, while Japan’s Topix declined 0.3 per cent. China’s CSI 300 added 0.1 per cent and South Korea’s Kospi rose 0.4 per cent.
Additional reporting by William Langley in Hong Kong
