Wall Street stocks were flat on Thursday as renewed jitters over US regional banks undercut traders’ optimism that the Federal Reserve would halt its rate-tightening campaign.
The benchmark S&P 500 was flat in New York but the tech-heavy Nasdaq Composite added 0.1 per cent, to touch its highest level since August. Lower rates increase the appeal of companies that promise long-term growth.
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 begin to cut interest rates because the economy was cooling.
But investors’ mood clouded as fears over the health of US regional bank stocks returned. PacWest shares fell 24 per cent after the bank announced it lost almost a tenth of its deposits in the first week of May. The KBW Regional Banking index fell 1.4 per cent.
“With yet another regional bank taking emergency action in response to fleeing customers, worries about the fragility of the [ . . . ] sector show little sign of abating,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.
The souring sentiment spread to European markets, with the region-wide Stoxx 600 reversing its morning gains to end the day flat. Germany’s Dax fell 0.4 per cent, while France’s CAC 40 ended 0.3 per cent higher.
Michael Metcalfe, head of Macro Strategy at State Street Global Markets, said: “There is a pull and push between micro factors, such as reported deposit falls in certain banks, set against macro hopes for a peak and eventually a fall in lower interest rates.”
London’s FTSE 100 edged down 0.1 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.
The pound weakened against the dollar on the day of the announcement, to trade nearly 1 per cent lower at $1.25.
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 0.6 per cent to $102.107 against a basket of six other currencies.
The yield on interest rate-sensitive two-year Treasuries rose 0.04 percentage points to 3.86 per cent, while the yield on 10-year notes was down 0.05 percentage points at 3.38 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 and Japan’s Topix both shed 0.1 per cent. China’s CSI 300 finished 0.2 per cent lower.
Additional reporting by William Langley in Hong Kong
