A global stock index sank for the fourth day in a row, while the dollar gained ground, as the European Central Bank hiked interest rates on Thursday and signaled the need for more tightening a day after the US Federal Reserve raised rates.
Treasury rates in the United States fell, while oil prices steadied after falling dramatically earlier in the week. Along with market angst over central bank messaging, Wall Street stock indexes were under pressure from another sell-off in US bank shares, which have been reeling after the weekend collapse of a third big regional bank.
European markets fell as the ECB, the central bank for the eurozone’s 20 member nations, hiked interest rates by 25 basis points to 3.25 percent and signaled that more tightening would be required to keep inflation under control. In contrast to the ECB, the Fed has hinted that its marathon hike cycle may be coming to an end.
The S&P 500 (.SPX) slid 29.53 points, or 0.72 percent, to 4,061.22, while the Dow Jones Industrial Average (.DJI) sank 286.5 points, or 0.86 percent, to 33,127.74.
While a pause in rate hikes was welcome news for US investors, it also implied that the economy was slowing, according to Lauren Goodwin, economist and portfolio strategist at New York Life Investments in New York. “This balance between potential interest rate stability and increased recession risk is what markets are trying to digest today,” Goodwin said.
The economist took the Fed’s mention of tighter lending restrictions as support of her forecast of an economic collapse. “It’s highly unlikely that we’ll avoid a recession,” said Goodwin. “We’re clearly on the verge of a recession in the coming months.” The Dow Jones Industrial Average (.DJI) was down 286.5 points, or 0.86 percent, to 33,127.74, while the S&P 500 (.SPX) was down 29.53 points, or 0.72 percent, to 4,061.22. The Nasdaq Composite (.IXIC) fell 58.93 points (0.49%) to 11,966.40.
All three of Wall Street’s major indexes fell for the fourth day in a row. It was the Nasdaq’s longest losing streak since December. MSCI’s global stock index (.MIWD00000PUS) down 0.47 percent, marking the first four-day losing run since mid-March.
In contrast, following three straight sessions of falls, emerging market equities (.MSCIEF) surged 0.70 percent. PacWest Bancorp (PACW.O), another US regional bank, signaled difficulty days after First Republic failed, adding to investor concerns. The S&P 500 bank index (.SPXBK) fell 2.8%, while the KBW regional banking index (.KRX) fell 3.5%.
Concerns about banks and the tougher lending terms they are currently giving, according to Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder, have spilled over into other sectors, such as the Dow Transports index (.DJI), which finished down 1.3%.
“With the banking crisis, credit will be tighter.” “There will be fewer lenders willing to lend,” Ghriskey predicts, citing the example of airlines facing higher rates and less financing available to purchase new aircraft. The dollar gained ground versus the euro as investors digested the ECB’s rate rise. The dollar index increased by 0.188 percent, while the euro fell by 0.43 percent to $1.1011. The Japanese yen rose 0.39 percent against the US dollar to 134.16 per dollar.
“In terms of the tightening cycle, the monetary policy dynamics are more or less fully priced in here at this point.” Now, the focus will be on bets on when the Fed begins to ease, how much it eases, and how that relates to what other central banks are doing,” said Shaun Osborne, chief FX strategist at Scotiabank in Toronto.
Benchmark Investors worried about regional banks and a faltering economy drove down 10-year and 2-year Treasury rates.
Benchmark 10-year notes fell 3.4 basis points to 3.369 percent late Wednesday, from 3.403 percent. The 30-year bond yesterday rose 0.9 basis points to 3.7243 percent, up from 3.715 percent. The yield on the 2-year note was recently down 17.3 basis points to 3.7656 percent, down from 3.939 percent.
Crude oil prices steadied following three days of steep drops due to demand concerns in key consuming countries caused by global economic concerns.
US oil closed the day down 0.06 percent at $68.56 a barrel, while Brent finished the day up 0.24 percent at $72.50. Meanwhile, spot gold had reached its highest level in years as US banks increased their rush to the safe-haven metal. Spot gold rose 0.6% to $2,050.66 per ounce. Gold futures in the United States rose 0.95 percent to $2,047.90 per ounce.