Wall Street subdued as US regional bank rally loses steam
US stocks wavered on Monday as an early rally in regional banking stocks faded and investors assessed a Federal Reserve survey that warned of tighter lending standards this year.
The S&P 500 finished fractionally higher, while the Nasdaq Composite added 0.2 per cent.
US regional bank stocks, which had rallied in early trade, were unable to hold on to their initial gains. PacWest shares initially added nearly 30 per cent after it said late last week that it would cut its quarterly dividend, but the stock closed 3.6 per cent higher.
Western Alliance added 0.6 per cent, having traded as much as 11 per cent higher earlier in the session. The KBW Regional Banking index gave up an advance of 1.1 per cent to slide 2.8 per cent.
The moves followed a rebound at the end of last week for US banking stocks, which had earlier been buffeted by concerns over the collapse of lender First Republic.
“There is a risk that regional bank issues could escalate, posing a broader risk to the financial system,” said Steve Englander, a strategist at Standard Chartered. “However, the resilience of big banks makes that unlikely, in our view.”
In government bond markets, yields rose as bond prices slipped following a sell-off on Friday. The yield on two-year US Treasuries rose 0.08 percentage points to 4.01 per cent.
Traders on Monday also assessed the Fed’s quarterly survey of senior loan officers, which showed US banks plan to raise their lending standards, adding to fears about a looming credit crunch for the world’s largest economy.
“A majority of banks plan to tighten standards further over the rest of the year. That will starve firms and households of credit and help push the economy into recession in the second half of this year,” said Michael Pearce, lead US economist at Oxford Economics.
“It is that longer-running squeeze on credit availability that will constrain borrowing-sensitive parts of the economy, particularly investment by small firms that drive a disproportionate share of hiring.”
The early banking rally had underpinned gains for stocks in Europe and Asia. The pan-European Stoxx 600 rose 0.3 per cent despite lingering worries that interest rates will remain high to combat inflation, even as economic growth stumbles. London was closed for a public holiday.
Hong Kong’s benchmark Hang Seng index rose 1.2 per cent, while China’s CSI 300 climbed 1.1 per cent. Japan’s Topix broke ranks with the rest of the region, falling 0.2 per cent.
But analysts were pessimistic that markets in Asia would push higher without improving economic data from China or signs that the Fed might begin cutting rates.
“Overall, market sentiment has stabilised, but I don’t really think [the market] can break through the wait-and-see, up-and-down pattern we’ve been seeing,” said Dickie Wong, head of research at Kingston Securities.
Elsewhere in markets, Brent crude, the international oil benchmark, rose 2.3 per cent to $77.01 a barrel, while West Texas Intermediate, the US marker, was up 2.6 per cent at $73.16 a barrel.