Stock markets down as traders weigh inflation, rate hikes

·4-min read
The dollar recovered some of the losses sparked by the US inflation print
The dollar recovered some of the losses sparked by the US inflation print

Major stock markets dropped on Thursday as investors assessed fresh US inflation data, the financial health of a regional bank and another UK interest rate hike.

Wall Street's main indices ended the day mostly lower, as regional lenders again came under pressure on rekindled fears over the stability of the banking sector.

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The mixed showing came as shares of PacWest slumped 22.7 percent, after it reported seeing deposits drop around 9.5 percent in the week of May 5.

In a filing, it noted that media reports saying it was exploring strategic options had fueled fear among customers over the safety of their funds. It added that its total deposits declined 16.9 percent in the first quarter.

Several other regional lenders saw weakness on Thursday, including KeyCorp, Zions Bancorporation and Western Alliance Bancorporation.

Most European indices closed down as well, including the FTSE 100 in London which dipped into the red after earlier gains.

"This came as a reminder that we're not out of the woods yet on issues with smaller banks," said analyst Alex Coffey of Charles Schwab.

"While a deposit decline at one bank doesn't necessarily signal broader problems, the market is hypersensitive to anything affecting this sector," he said.

Disney was also dragging on markets after the entertainment giant said subscribers to Disney Plus had fallen for the second straight quarter, as it competes with streaming platform Netflix for viewers.

"US stocks are lower after some not so magical results from Disney and as banking jitters returned," said Edward Moya, senior market analyst at OANDA.

"Banking stress won't be going away anytime soon."

- 'Hard landing' fears -

Traders also assessed figures showing that US wholesale prices rose modestly in April, giving the Federal Reserve another data point as it weighs the need for more rate hikes.

The Fed has raised interest rates 10 times in a row in a bid to control rising prices, though it signaled that future decisions will be data-dependent.

While US inflation is generally showing signs of moderating, traders remain jittery.

"I think there is a legitimate fear of a hard landing," warned Hugh Johnson of Hugh Johnson Economics.

This is being spurred by concerns over regional banks, with deposit outflows and a reduction of lending, he added.

Investors are also tracking the political battle over raising the US debt ceiling. Democrats and Republicans have so far failed to reach a deal weeks before the country risks running out of cash to pay its bills.

- Bank of England lifts rates -

In Britain, the Bank of England lifted its interest rate by a quarter-point to 4.5 percent on Thursday, the highest level since the 2008 financial crisis as inflation remained above 10 percent.

"The Bank of England is clearly concerned about the stickiness of UK inflation," said Shanti Kelemen, chief investment officer at M&G Wealth.

"Higher interest rates will eventually reduce demand for services, but it takes time for the impact to be translated to the economy."

While raising its rate for a 12th time in a row, the BoE upgraded its British GDP forecast, adding there would be only a small impact from recent turmoil in the commercial banking sector.

BoE governor Andrew Bailey said the UK would this year experience "modest but positive economic growth and a much smaller increase in unemployment," after predicting a recession six months ago.

Thursday trading was also subdued in Asia after more data from China suggesting a slow recovery after pandemic curbs were eased.

Producer prices in the world's second-biggest economy fell for the seventh consecutive month, due to sluggish domestic demand and lower commodity costs.

The disappointing Chinese data helped to drive down oil prices, analysts said, due to worries over future demand.

- Key figures around 2030 GMT -

New York - Dow: DOWN 0.7 percent at 33,309.84 (close)

New York - S&P 500: DOWN 0.2 percent at 4,130.57 (close)

New York - Nasdaq: UP 0.2 percent at 12,328.51 (close)

EURO STOXX 50: UP 0.1 percent at 4,309.75 (close)

London - FTSE 100: DOWN 0.1 percent at 7,730.58 (close)

Frankfurt - DAX: DOWN 0.4 percent at 15,834.91 (close)

Paris - CAC 40: UP 0.3 percent at 7,381.78 (close)

Tokyo - Nikkei 225: FLAT at 29,126.72 (close)

Hong Kong - Hang Seng Index: DOWN 0.1 percent at 19,743.79 (close)

Shanghai - Composite: DOWN 0.3 percent at 3,309.55 (close)

Euro/dollar: DOWN at $1.0918 from $1.0985 on Wednesday

Pound/dollar: DOWN at $1.2514 from $1.2627

Dollar/yen: UP at 134.55  yen from 134.34 yen

Euro/pound: UP at 87.22 pence from 86.98 pence

Brent North Sea crude: DOWN 1.9 percent at $74.98 per barrel

West Texas Intermediate: DOWN 2.3 percent at $70.87 per barrel

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