Wall Street tipped lower in premarket trading Thursday as anxiety over the stability of regional banks dragged on a day after the Federal Reserve announced another interest rate hike.
Futures for the S&P 500 and the Dow Jones industrials fell 0.3%.
Concerns about a rush of withdrawals by customers of regional banks continues to roil the financial sector. PacWest Bancorp attempted to calm investors investors overnight as its shares plunged 45%. First Horizon shares tumbled 42% before the bell after it called off its acquisition by TD Bank, citing regulatory hurdles.
PacWest said it’s been approached by several potential partners about a deal and that talks are ongoing. It also said that it has not experienced out-of-the-ordinary deposit flows following the failure and sale of First Republic Bank after a modern day bank run. First Republic’s failure last weekend follows the collapse of Silicon Valley Bank and Signature Bank in March.
The anxiety over stability and possible flight of depositors wracked other regional banks early Thursday. Zions Bancorp slumped 10%, Comerica fell 7%, and KeyCorp fell 5%.
A U.S. recession is widely expected this year as the Fed and other central banks in Europe and Asia try to extinguish inflation through economy-slowing interest rate hikes.
Jitters increased after the three high-profile U.S. bank failures and one in Switzerland blamed on strain from higher interest rates. Central banks have tried to reassure investors by pledging steps including additional lending if needed.
Some banks invested heavily in traditionally safe bonds, but the value of those bonds are tied to interest rates, which have been hiked aggressively. That means the value of the bonds on bank books slide in value if they are sold, which some banks have been forced to as depositors flee.
After the Fed’s quarter-point rate hike on Wednesday — its 10th straight increase in just over a year — traders expect the central bank to start cutting rates as early as this year to prop up weakening economic growth. But Wednesday, Fed Chair Jerome Powell said he doesn’t expect rate cuts that soon.
The Fed dropped a reference to “additional policy firming” in its statement but stopped short of declaring an end to rate hikes.
“The key takeaway, in my view, is that we are likely at or very near the end of the rate hike cycle,” Kristina Hooper of Invesco said in a report.
Still, data from CME Group indicates traders see an 89% changes of a cut of 0.25 percentage points at the Fed’s September meeting.
Traders worry industry turmoil might prompt banks to reduce lending, worsening downward pressure on economic activity. Powell mentioned a survey that is yet to be released and will show how much loan officers at banks say they are tightening lending standards.
At midday in Europe, the FTSE 100 in London and Frankfurt’s DAX each shed 0.8% and the CAC 40 in Paris retreated 1%.
In Asia, the Shanghai Composite Index rose 0.8% to 3,350.45 as trading resumed following a holiday. The Hang Seng in Hong Kong surged 1.4% to 19,969.40.
The Kospi in Seoul lost less than 0.1% to 2,500.94 and Sydney’s S&P-ASX 200 fell less than 0.1% to 7,193.10.
India’s Sensex gained 0.5% to 61,500.18. New Zealand and Southeast Asian markets advanced.
Shares in Shopify jumped nearly 17% in premarket after the e-commerce company said it is selling the two biggest pieces of its fulfillment network and abandoning its logistics ambitions. It’s a remarkable reversal from the Canadian company’s multiyear effort to build its own warehousing and delivery services.
Profits for most U.S. companies during the latest reporting season are better than feared but are expected to reflect declines.
A report Wednesday suggested the job market may be in better shape than expected. ADP, a payroll processor, said hiring by private employers accelerated much more last month than forecast. That could raise expectations for the federal government’s hiring report on Friday.
Coming later Thursday is the government’s weekly report on unemployment claims, which have inched higher in recent weeks.
In energy markets, benchmark U.S. crude was essentially unchanged early Thursday on the New York Mercantile Exchange. The contract plunged $3.06 on Wednesday to $68.60. Brent crude, the price basis for international oil trading, gained 21 cents to $72.54 per barrel in London. It fell $2.99 the previous session to $72.33.
The dollar fell to 134.44 yen from Wednesday’s 135.46 yen. The euro edged up to $1.1071 from $1.1058.
On Wednesday, the Dow fell 0.8% and the Nasdaq composite slipped 0.5%.
