US Stocks Fall Sharply on Bank Concerns and Economic Data Softening

US stocks fell sharply on the 2nd. After a day of relief on Wall Street after the acquisition of First Republic Bank, a selloff in regional bank stocks reignited concerns about financial stability. A broad sell-off in stocks accelerated the flight to safe haven assets.

Regional banks Pacwest Bancorp and Western Alliance Bancorp both plunged ahead of the Federal Open Market Committee (FOMC) policy decision tomorrow. Pacwest is down more than 27%, while Western Alliance is down more than 15%. The S&P 500 stock index fell nearly 2% at one point. Financial stocks weighed on.

Selling to U.S. regional bank stocks, Pacwest drops 42% at one point – skeptical about next bankruptcy (1)

Bearish hedge fund traders have sold stocks, and long-only investors have joined the selloff, said John Flood, a partner at Goldman Sachs Group Inc., in a report.

“There was a rapid sell-off on the back of expectations that the turmoil in the banking industry would continue for the foreseeable future,” said Ed Moya, senior market analyst at Oanda. “With persistent skepticism about regional banks, rising recession odds and a heightened risk of a U.S. default in June, all eyes were on the table,” he said. said.

All of these factors will only add to investor anxiety about the FOMC’s future moves.

In addition to the financial stress caused by bank failures, authorities have been caught between persistent inflation and data pointing to a slowing economy. According to the Department of Labor Employment Trends Survey (JOLTS) released on the same day, the number of job openings fell more than the market expected. There is also growing concern over the US debt ceiling debate.

U.S. job openings drop to 9.59 million in March, layoffs at highest level since 2020 (1)

In the swap market, the FOMC policy decision on the 3rd is still expected to raise interest rates by 0.25 percentage points, but the rate of additional interest rate hikes after that has receded. On the other hand, the pricing of a rate cut later this year has strengthened.

US Treasuries

U.S. Treasuries surged and yields plummeted. Continuing concerns over US regional banks and economic data suggesting a softening labor market have pushed investors into safe haven assets.

“The market is starting to notice tighter credit,” said Jack McIntyre, portfolio manager at Brandywine Global Investment Management. “Any form of credit tightening hits at the same time as the lagging effect of monetary tightening,” he said.

The six-month US Treasury bill (TB) rate has broken through 5%. The Fed reacted to Treasury Secretary Yellen’s suggestion that the special accounting measures to keep the federal debt below the ceiling could be used up as early as early June.

foreign exchange

In the foreign exchange market, while the yen rose, the dollar weakened. Concerns about the health of the U.S. banking industry and signs of a softening labor market weakened risk sentiment.

The Bloomberg Dollar Spot Index temporarily fell 0.2%. Before the announcement of the number of job openings, there was a scene of 0.2% increase. The dollar fell below the 200-day moving average of 137 yen against the yen, dropping 0.9% to 136.32 yen.

crude

The New York crude oil futures market continued to fall, and fell sharply for the first time in almost four months. With the thin business, the influence of the US and China’s economic indicators, which became dark, was amplified.

West Texas Intermediate (WTI) futures closed below $72 a barrel, the lowest since March 24.US job market and ChinaWeak data on manufacturing weighed on the index. Trading volumes in the U.S. were the lowest since December a day earlier, while some Asian markets and the U.K. were closed.

“The market is a desert without investors,” said Scott Shelton, an energy specialist at ICAP. “There is no supply and demand factor to create predictable price action,” he said.

“We need some indication of tightening in the physical market to see any more positive or committed trading activity,” Standard Chartered analyst Emily Ashford said.

WTI futures for June delivery on the New York Mercantile Exchange (NYMEX) closed at $71.66 a barrel, down $4 (5.3%) from the previous day. The rate of decline was the largest since January 4. London ICE’s North Sea Brent July contract fell $3.99 to $75.32.

Money

The New York gold market rebounded. The spot market rose sharply for the first time in a month. Growing concerns about the U.S. debt ceiling and job-related indicators suggesting a softening demand for labor led to buying of gold as a safe haven.

U.S. job openings fell more than expected in March to the lowest level in nearly two years. With important central bank meetings ahead and time running out in the dispute over the U.S. debt ceiling, the lure of gold has increased as it enters a risky phase.