Equity markets in the US barely moved to start the week, despite a new chapter in the US regional banking saga that has been unfolding for nearly two months now. On Monday, JPMorgan, the largest US bank by deposits, agreed to takeover First Republic Bank, the 14th largest, after the government closed First Republic. Traders largely ignored the financial sector news and instead positioned themselves ahead of the rate decision by the US Federal Reserve (Fed) on Wednesday. The central bank is widely expected to announce another 25-basis-point interest rate hike.
The First Republic takeover came after the bank was closed by regulators on Monday following months of uncertainty about the bank’s future and massive asset outflows. First Republic is the third major bank to collapse in the US in recent months and it remains to be seen whether the takeover by a major Wall Street bank will quell investors’ fears about the strength of banks’ balance sheets given the rapidly increasing interest rates.
Equity markets in New York ended the first day of May roughly where they started, despite the banking sector turbulence. The Dow Jones Industrial lost 0.14% to end the day at 34,051.70 points and the S&P 500 lost 0.04% to close at 4167.87 points. The tech-heavy Nasdaq indices lost around 0.1%. Markets in many European countries were closed on Monday due to a public holiday.
In Asia, trading was mixed on Tuesday following a 25-basis-point interest rate hike by the Bank of Australia. The move caught some traders off guard as the bank had left its cash rate unchanged at 3.6% in April. Australia’s S&P/ASX 200 lost 0.7%, led by losses in the financial sector. In Tokyo, the Nikkei was trading marginally lower. South Korea’s Kospi gained 0.6% following data that showed inflation is slowing in the country. Hong Kong’s Hang Seng Index rose slightly and the Hang Seng Tech index gained 0.25%. Markets in mainland China were closed for a holiday on Tuesday.
Ahead of Wednesday’s Fed decision, data released on Friday showed inflation remains sticky in the US, bolstering the case for another rate hike on Wednesday. The core personal consumption expenditures price index, which excludes volatile food and energy prices, increased 0.3% in March compared with the previous month. Versus the same month a year earlier it was up 4.6%. That number is clearly higher than the Fed’s target of 2% inflation. Since March of last year, the Fed has increased its key interest rate a total of nine times.
The euro zone economy managed to narrowly avoid contraction in the first quarter of the year, growing just 0.1%, according to data released at the end of last week. The bloc’s largest economy, Germany, came in flat. Compared with the same quarter a year earlier, the euro zone economy grew by 1.3%. The ECB will take into consideration in the weak growth when announcing its policy rate decision on Thursday, a day after the Fed.
Switzerland’s KOF Economic Barometer declined in April by 2.8 points to 96.4 and is now slightly below its medium-term average on Friday. The components of the indicator for manufacturing, services, hospitality and private consumption all showed deterioration in April. The outlook for financial and insurance services brightened, despite the issues surrounding UBS’s emergency takeover of Credit Suisse.
Corporate news in focus: Q1 figures from HSBC, Geberit, BP, Pfizer and Ford.
Economic data in focus: Manufacturing PMIs from various countries throughout the day, ECB M3 money supply (10:00 CET), Eurozone Consumer Price Index (11:00), US JOLTS jobs report for March (16:00).
Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi,
Source: LGT Bank (Switzerland) Ltd.