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Stocks rebound as cooling inflation offsets bank fears

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  • Post last modified:15/03/2023
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LONDON: US and European stock markets rebounded on Tuesday as easing inflation data in the United States offset fears over the health of the banking system.

Shares of banks recovered after markets were rocked earlier this week by the collapse of two US regional lenders, which forced authorities to launch measures aimed at preventing contagion across the sector.

The markets bounced as the turmoil changed the views of investors about the likelihood of another interest rate hike next week by the US Federal Reserve as the central bank battles inflation.

Prior to the implosions of Silicon Valley Bank and Signature Bank, markets were concerned that the Fed could tip the economy into recession by stepping up its monetary tightening campaign.

Fed chief Jerome Powell made comments last week seen by the market as an indication that the central bank would increase rates by 0.5 percentage points.

But more investors now predict that the Fed will slow or pause its rate hikes – or even cut them – at its meeting next week.

US consumer price data on Tuesday showed annual inflation eased to 6.0 percent in February as expected.

“The collapses of Silicon Valley Bank and Signature will undoubtedly weigh on the Fed’s mind, with opinion divided on whether the Fed should pause rate hikes immediately,” said Neal Keane, head of sales trading at the international brokerage ADSS.

He said a rate hike of 0.25 percentage points “still looks the more likely scenario, with further hikes still possible while inflation continues running too high at current levels.”

Market analyst Patrick O’Hare at also said the inflation data “should ensure that the Fed raises rates by 25 basis points, unless it wants to send a message that the banking problem is a bigger issue than people think by not raising rates”.

Wall Street’s main stock indices rebounded, with the Dow rising 1.1 percent in midday trading. The broader S&P 500 climbed 1.7 percent and the tech-heavy Nasdaq Composite gained 2.1 percent.

The share prices of US regional banks which were especially hard hit on Monday snapped higher.

Shares in First Republic bank, which tumbled 62 percent on Monday, shot up 57 percent. KeyCorp rose 14 percent and Zions Bancorp climbed 13 percent.

“US banking stocks are on a roller-coaster ride, rising sharply following the steep sell offs yesterday as worries seem to be lifting a little about contagion from the SVB collapse,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown brokerage.

The fast-moving banking crisis forced US authorities to immediately pledge support for other lenders and depositors.

Bloomberg News reported that about $465 billion had been wiped off the market value of global financial stocks in just three days.

The collapse of SVB – which specialised in venture-capital financing mainly in the tech sector – was largely the result of the Fed’s sharp interest rate hikes aimed at quelling inflation, which hit securities hard.

European banking shares also recovered, including hard-hit Credit Suisse, which acknowledged Tuesday “material weaknesses” in its internal controls.

Europe’s main stock indices closed with solid gains, with London up 1.2 percent, Frankfurt climbing 1.8 percent and Paris rising 1.9 percent.

Bitcoin hit its highest level in nine months, briefly rising above $26,500.
Oil prices fell further as traders fret over the demand outlook caused by a possible recession.

Shares in Meta jumped 6.4 percent after the parent company of Facebook and Instagram announced it will cut another 10,000 jobs, after having eliminated 11,000 positions last November.

“Mark Zuckerberg said this is the year of efficiency and he’s clearly taking drastic action in terms of reducing the size of Meta’s workforce to achieve cost cuts,” said Victoria Scholar, head of investment at Interactive Investor.

“In terms of investor confidence, his aggressive approach seems to be paying off,” she noted, with the company’s stock up by more than 50 percent so far this year.

– Key figures around 1630 GMT –

New York – Dow: UP 1.1 percent at 32,163.93 points
London – FTSE 100: UP 1.2 percent at 7,637.11
Frankfurt – DAX: UP 1.8 percent at 15,232.83
Paris – CAC 40: UP 1.9 percent at 7,141.57
EURO STOXX 50: UP 2.0 percent at 4,179.47
Tokyo – Nikkei 225: DOWN 2.2 percent at 27,222.04 (close)
Hong Kong – Hang Seng Index: DOWN 2.3 percent at 19,247.96 (close)
Shanghai – Composite: DOWN 0.7 percent at 3,245.31 (close)
Dollar/yen: UP at 134.57 yen from 133.22 yen on Monday
Euro/dollar: DOWN at $1.0718 from $1.0731
Pound/dollar: DOWN at $1.2147 from $1.2181
Euro/pound: UP at 88.22 pence from 88.08 pence
West Texas Intermediate: DOWN 2.0 percent at $73.26 per barrel
Brent North Sea crude: DOWN 1.9 percent at $79.26 per barrel