US regional bank stocks fall in worst crisis since 2008 – 5/4/2023 – Market

Shares in several US regional banks fell in premarket trade on Thursday during the sector’s worst crisis since 2008, overshadowing a Fed suggestion that soon may discontinue its policy of raising interest rates.

California’s PacWest was down more than 45% before Wall Street opened after the lender said it was approached by potential partners and investors about a possible sale. Other regional lenders such as Western Alliance and Metropolitan Bank fell 17% and 15% respectively.

SVB (Silicon Valley Bank), Signature and First Republic have all collapsed since March, with the KBW Regional Banking Index down 31% over the past three months.

Meanwhile, First Horizon’s share price halved in premarket trading after the Memphis-based lender and TD Bank of Canada said regulatory hurdles led them to mutually agree to end plans for a merger.

US futures fell after the Federal Reserve raised the federal funds rate to a new target of 5% to 5.25%, the highest level since mid-2007. Contracts tracking the S&P 500 fell 0.4% and those following the tech-heavy Nasdaq were flat.

The Fed’s latest statement removed previous guidance stating that further monetary tightening “may be appropriate” and emphasized that its policy approach would depend substantially on economic data.

Speaking after the policy decision, Chairman Jay Powell said the central bank still expects inflation to be slow to reach its target. “We on the committee have the view that inflation will not fall so fast […] if that prediction is correct, it would not be appropriate to cut rates,” he said.

Analysts said the changes to the Fed’s statement could mark the end of the current tightening cycle. However, while markets priced in several rate cuts before the end of the year, opinions were mixed on the likelihood of an imminent easing while inflation persists.

“A downturn, or even a mild recession, may not be enough to convince the Fed to reverse course on policy any time soon,” said Tai Hui, market strategist at JPMorgan Asset Management.

Ray Sharma-Ong, chief investment officer for multi-asset investment solutions at Abrdn, said banking sector issues – such as the recent failure of First Republic Bank – likely did not pose a systemic threat, but tightening credit conditions could weigh heavily. on US growth and force the Fed to take supportive action.

“With the Fed’s future guidance[…]indicating a strong shift towards data reliance, we expect the Fed to cut rates when a recession strikes,” Sharma-Ong said.

Across the Atlantic, Europe’s regional Stoxx 600 fell 0.8% as traders braced for an expected interest rate hike from the European Central Bank.

The ECB is expected to raise rates by a quarter of a point to 3.25%, in a move that would mark a slowdown from consecutive 0.5 point hikes this year. The euro zone’s headline inflation rate rose for the first time in six months to 7% in the year to April, although core inflation fell for the first time since June 2022.

China’s CSI 300 stock index was flat after a long holiday on Thursday, as were South Korea’s Kospi and Australia’s S&P/ASX 200. Hong Kong’s Hang Seng Index was the only major benchmark to post gains, rising 1.2% as markets in Japan were closed for a holiday.

Translated by Luiz Roberto Gonçalves