US stocks inched lower in early trade on Tuesday, as the recent strains in the banking sector continued to ease.
The blue-chip S&P 500 fell 0.2 per cent and the tech-heavy Nasdaq was 0.4 per cent lower.
Bank stocks were steady, with the KBW Nasdaq Bank index up 0.2 per cent, while Citigroup rose 0.4 per cent per cent and JPMorgan was up 0.5 per cent.
Bank stocks had risen on Monday as investors welcomed news that US regulators could enact more policies to support fragile confidence in banks. The advances in US bank shares also came as regulators confirmed First Citizens Bank would purchase part of the collapsed Silicon Valley Bank.
“At the moment no news is good news. People are waiting for the dust to settle and to see if there is another banking stress,” said Nadège Dufossé, global head of multi-asset at Candriam. “I expect better news flow around inflation in coming months but for now we don’t know the impact on growth. We’re not out of the woods yet and will continue to see volatility.”
Investors and economists are now weighing the impact of the banking crisis on growth and the likelihood and severity of a recession. According to analysts at UBS, the Fed’s downgrade of its 2023 growth forecast “suggests that either the banking stress is worse than investors currently know (the Fed gets bank data before the market) or the Fed is being conservative with its growth assumptions because the credit tightening impact is highly uncertain. For investors, the safest conclusion is that the risk of a recession has gone up”.
In Europe the Stoxx Europe 600 Banks index, which includes the region’s biggest lenders, was down 0.5 per cent. Commerzbank was among the biggest gainers, up 0.2 per cent. Deutsche Bank, however, was down 2.6 per cent.
The mood was reflected in broader share indices, with the regionwide benchmark Stoxx 600 down 0.2 per cent and Germany’s Dax down 0.1 per cent. London’s FTSE was flat.
In Asia, the Hang Seng index closed up 1.1 per cent after Monday data showed that Chinese industrial profits declined 22.9 per cent year on year.
Government debt weakened, with yields on two-year US Treasuries rising 0.06 percentage points to more than 4 per cent, while 10-year notes rose 0.03 per cent to 3.55 per cent.
In currency markets, the dollar index — which measures the greenback against a basket of six peer currencies fell 0.3 per cent. The euro and sterling rose 0.2 and 0.1 per cent against the dollar respectively.
Brent crude rose 0.1 per cent to $78.19 a barrel, while WTI, the US equivalent, was flat at $72.75 a barrel.
