Expectations for the Fed, markets on alert and US banks tremble

Expectations for the Fed, markets on alert and US banks tremble

The futures of Actions US dollars rose in fragile markets on Wednesday, with traders on edge awaiting any hint of today’s statement from the Federal Reserve that interest rate hikes could peak and the soft landing that central banks have been looking for is in sight.

The two-month US Treasury yield rose on growing concern that the government could hit its debt ceiling sooner than expected.

Oil, which plunged more than 5% the day before, continued to sink and lost around 3% in the session.

On Tuesday, shares of US regional banks took a hit. PacWest Bancorp fell 27.8%; Western Alliance Bancorp, 15.1%; and Comerica Inc, 12.4%.

Markets are almost certain that the Fed will announce a 25 basis point rate hike when it announces its policy decision at 1800 GMT. If that happens, the focus will be on whether its president, Jerome Powell, does or does not push back investor expectations of haircuts by the end of the year.

The pan-European STOXX 600 index was up nearly 0.5% after Tuesday’s sharp decline. S&P 500 futures were up 0.1%, but the mood was cautious, with banks in the crosshairs.

“Today it is not clear if the markets are moved by the debt ceiling, the fall of the regional banks or the anxiety about the decisions of the FOMC (Federal Open Market Committee, for its acronym in English),” Vijay said. Modhvadia, managing director of Deuterium Capital Management.

Traders will watch the Fed’s statement for any hint of a rate hike pause, or to see if the text keeps options open for another hike in June, he added.

The markets of China and Japan were closed for a holiday. Shares fell in Hong Kong, dragging MSCI’s broader Asia-Pacific ex-Japan index down about 0.6%.

Bonds and gold held their gains. The lower dollar was caught in the crosswinds of falling yields and rising jitters.

Currency markets were steady ahead of the Fed. The euro was up 0.3% at $1.1030.

Gold was trading above $2,016 an ounce, little changed on the day.

The yield on two-year bonds fell 2 basis points to 3.96%, while that on 10-year paper fell 3 basis points to 3.40%.

US banks in tension

Shares of midsize US banks were down in pre-market trading on Wednesday.

PacWest Bancorp and Western Alliance Bank added to heavy losses earlier in the week, after the failure of a third regional bank in two months reignited fears for the sector.

First Republic Bank’s intervention by the regulator and the sale of its assets to JPMorgan Chase & Co on Monday brought turmoil in the banking sector back to the fore and triggered a sell-off as investors wonder what to do next.

The KBW regional banking index closed on Tuesday at its lowest level since December 2020.

“The wave of concern about the poor health of the portfolios of regional US banks is mounting, with many sitting on large unrealized losses, at a time when deposit flight is on the rise,” said Susannah Streeter, head of Hargreaves Lansdown Money Markets.

“The ease of withdrawing money in the digital age is causing further nervousness, given the speed of bank failures in the past two months.”

PacWest shares were down 10.5% before the bell after closing Tuesday at record lows. Western Alliance Bank lost 7.2%, while Comerica and Zions Bancorp fell 3.3% and 2.6%, respectively.

PNC Financial Services Group Inc was down 1.8%. The financial institution said on Tuesday that the parent company and its banking subsidiary could offer up to $15 billion of their debt securities to provide additional liquidity.

Source: Ambito

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