Singapore, May 4 (BNA): Global stock markets fell while the Japanese yen rose Thursday in reaction to the Federal Reserve’s policy statement and signs of stress from another US regional bank, prompting investors to price in pivot rather than just a pause in the rate. He increases.
Another US regional bank, Backwest Bancorp, reported problems overnight, reminding investors of the precarious health of some banks despite assurances from regulators about containing the crisis that began with the collapse of Silicon Valley and Signature Bank in March.
The Federal Reserve raised interest rates by a quarter of a percentage point and signaled it may pause further hikes, giving officials time to assess the fallout from bank failures, wait for a political solution to the US debt ceiling and monitor inflation, Reuters reported. .
Although investors initially welcomed the possibility of a pause, their confidence waned as Chairman Jerome Powell spoke, as clarifying inflation remains the primary concern and it is too early to say with certainty that the cycle of rate hikes is over, Reuters reports.
“The Fed’s decision was widely expected, so it didn’t come as a huge shock to financial markets,” said Tina Ting, market analyst at CMC Markets in Auckland. “However, I think the whole economic manipulation is not positive, especially the recent banking collapse from regional banks, and those big banks taking control of the smaller ones. It’s not a good sign, and the risks are spilling over into the broader banking system, which worries investors.”
The European Central Bank meets later and is expected to raise interest rates. It would be the seventh rate hike for the European Central Bank, the central bank for a 20-country region whose headline inflation rate is 7%, and has so far dismissed the current banking crisis as a US-specific one.
European stocks also looked weak, with Eurostoxx 50 futures flat and the FTSE index down 0.21%, MSCI’s broadest index of Asia-Pacific stocks outside Japan rose 0.6% in trade weakened by Japanese holidays this week.
China’s main index opened lower as mainland markets bounced back after the Labor Day holiday but rebounded, led by state-owned enterprises.
Investors cheered a boom in domestic tourism over the long holiday. Meanwhile, the Caixin/S&P Global manufacturing PMI was unexpectedly weak in April, indicating weak domestic demand.
E-mini futures for the S&P 500 index fell 0.22%, reflecting a sharp decline in regional bank stocks after US markets closed. The S&P 500 closed down 0.70%.
PacWest fell nearly 60% after announcing it was exploring strategic options, including a possible sale or capital increase. A liquidity boost it announced in March failed to inspire confidence in its flagging share price.
Those concerns left Asian markets prices not only at a potential peak in US interest rates but even a trough.
“I think he (Powell) may have been more forceful in raising the bar further than some might expect,” said Rob Carnell, ING’s regional head of Asia Pacific research based in Singapore. “There seems to be a great deal of consideration for these other bits of economic data that is kind of being incorporated into their decision to say that’s pretty much all we’re going to get (in terms of rate hikes).”
ING expects to cut 100 basis points by the end of the year.
Treasury futures rose, as did Federal Reserve funds futures, the latter suggesting a 52% chance of a rate cut in July. The two-year note rose to a yield of 3.8%.
The Japanese yen strengthened 0.1% against the dollar at 134.51 per dollar, adding to its rise of more than 1% on Wednesday.
In weak Asian trade, the British pound rose 0.2% to a nearly 11-month high of $1.25905, while the euro rose 0.19% to $1.1082, flirting with its recent peak in a year.
Mizuho analysts said excitement about the implied pause in Fed tightening may have been overblown and that the Fed’s guidance was “just more contemplative” and was “cautious about further increases, not overly panicky about over-tightening.”
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