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US equities rose on Thursday as investors digested a spate of central bank interest rate rises that have come in spite of recent turbulence in the banking sector.
The blue-chip S&P 500 rose 0.3 per cent, lead higher by tech stocks, while the tech-heavy Nasdaq Composite gained 1 per cent. Trading in both indices were choppy on Thursday, alternating between small losses and gains.
Late on Wednesday the US Federal Reserve proceeded with the 0.25 percentage point interest rate increase markets expected, but signalled that its monetary tightening cycle may be nearing the end. Tech is typically an industry that is heavily dependent on borrowing, so tech stocks are sensitive to interest rates.
On Thursday, the Bank of England raised its benchmark interest rate by 0.25 percentage points, also anticipated by markets. The Swiss National Bank and Norway’s central bank also increased interest rates on Thursday.
European equities were mixed: The region-wide Stoxx 600 closed down 0.2 per cent and London’s FTSE 100 lost 0.9 per cent. However, Germany’s Dax was flat and the CAC 40 in Paris finished 0.1 per cent higher.
In its monetary policy statement on Wednesday, the Fed omitted its oft-repeated references to the need for “ongoing” rate rises. Swaps markets are pricing in no change at the next meeting in May, with an outside chance of one more increase.
“Balancing the Fed’s desire to keep its pressure on inflation, and the reality of tightening credit conditions and bank lending appetite, we think the Fed could still deliver one more 25bp hike in May,” said Tai Hui, chief market strategist for Asia-Pacific at JPMorgan Asset Management.
The US financial sector fell on Thursday, even as US Treasury secretary Janet Yellen said the US was “prepared to take additional actions if warranted” to ensure the safety of US bank deposits. The KBW bank index ended the day down 1.7 per cent. Shares in the San Francisco-based First Republic, which this week hired advisers to explore options including a sale, fell 6.2 per cent.
US Treasuries gained on Thursday, with the yield on the two-year note, which is closely linked to short-term interest rate expectations, down 0.14 percentage points at 3.8 per cent.
Sterling rose against the dollar to a peak of $1.23 after the BoE decision, its highest point since early February. The yield on two-year gilt contracts was down 0.21 percentage points at 3.25 per cent. The yield on the 10-year note was down 0.09 percentage points to 3.35 per cent.
The central bank has been left balancing higher rates with the looming credit crunch resulting from the worst bout of banking turmoil since the financial crisis of 2008. The Fed said the US banking system was “sound and resilient”, but added that it was not yet clear to what degree the tighter credit conditions likely to stem from the collapse of Silicon Valley bank and Signature Bank would restrict the economy and inflation.
Banks in turmoil
The global banking system has been rocked by the collapse of Silicon Valley Bank, Signature Bank and the last-minute rescue of Credit Suisse by UBS. Check out the latest analysis and commentary here
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