US stocks fall, Treasuries rise as bank selling resumes

Treasuries rallied and Wall Street stocks tumbled Tuesday as selling by US regional banks unnerved investors ahead of key decisions by major central banks this week.

Investors piled on US government debt, with yields on interest-sensitive 2-year Treasuries falling 0.15 points to 3.98% and 10-year Treasury yields falling 0.13 points to 3.44%.

In the stock market, Wall Street’s benchmark S&P 500 fell 1.2%, trailing the energy sector, which fell 4.3% on weaker fuel demand in the US and China. The Nasdaq Composite of tech stocks fell 1.1%.

“What’s happening today is a flight to quality,” said Mimi Duff, Managing Director of GenTrust. “It feels like the stress in the banking system is not over,” she said.

US regional banks took center stage in New York as PacWest Bancorp fell 27.8% and Western Alliance Bancorp fell 15%. The KBW Regional Banking Index dropped his 5.5% in its worst session since March 17.

“Right now it’s one domino after another. Bluebay Asset Management Chief Investment Officer Mark Dowding said the bears are on their way to the next short sale.

Despite this week’s First Republic bailout, regional lender sell-off has sparked renewed concerns over financial stability and soured investor sentiment ahead of Wednesday’s Federal Reserve monetary policy decision. rice field.

The central bank of the United States is in trouble. Policy makers are bracing markets for a banking crisis-induced credit crunch at a time when the economy shows signs of cooling (when U.S. job openings plunged to their lowest level in almost two years in March). Even when we are tasked with controlling inflation.

Investors are expected to see another quarter-point gain on Wednesday, which will push the benchmark federal funds rate into a new target range of 5-5.25%, but what the Fed will do next. I’m not sure.

“Tomorrow’s main focus for the Fed will be whether it gives a hint of forward guidance,” said Jim Reed, managing director of Deutsche Bank.

“It could be put on hold for a while depending on where the jobs drop and what the next inflation rate is,” Duff said. “We know that monetary policy works with long and fluctuating lags.”

Concerns about the US debt ceiling further dampened the mood, the Treasury secretary said. Janet Yellen warns On Monday, the federal government is in danger of running out of cash on June 1st.

Crude oil prices fell for a second day in a row, with the international oil benchmark Brent crude and its equivalent US West Texas Intermediate each down more than 5%.

In Europe, stocks fell as they rose euro zone inflation The data has raised investor fears that the European Central Bank will raise interest rates this week. The Stox 600 across Europe fell 1.2% and his Cac 40 in Paris fell 1.5%.

The decline is due to Eurozone inflation falling 7% in Aprilup from 6.9% in the previous month, rising for the first time in half a year.

“This is a clear incentive for the ECB to keep raising rates,” said Carsten Brzeski, chief eurozone economist at ING.

The ECB is set to make a decision on Thursday, with markets mostly pricing in gains of 3% to 0.25%. Investors also expect more increases this year.

The FTSE 100 fell 1.2% as investors became cautious after falling oil stocks such as BP and Total. BP shares fell 8.6% in London after Britain’s energy group said it was slowing its share buyback plan.

Asian trading was mixed on Tuesday, with Hong Kong’s benchmark Hang Seng Index up 0.2% and Japan’s Topix down 0.1%. Chinese markets are closed for Golden Week.