SINGAPORE (Reuters) – Global stocks fell on Tuesday amid caution set in ahead of the Federal Reserve’s upcoming policy meeting, while bumper profits at Europe’s largest bank boosted financial stocks.
The Australian dollar rose after the central bank surprised markets with a sudden hike in interest rates, while in US markets, short-term government bond yields rose after the Treasury said it may run out of the liquidity it needs to pay its bills. early June.
The Federal Reserve is expected to raise interest rates by a quarter point on Wednesday, but with many concerned about a tug-of-war over the government’s debt limit, as well as the stability of the banking sector after the failure of a third US lender. Within two months, the money markets are showing that investors believe this will be the last rally.
“No one is going to want to do much before we get to the FOMC decision. It’s a case of deals being put in place before the Fed meeting,” said TraderX Strategist Michael Brown.
“Stocks seem to be recovering today, and the fact that we haven’t been able to convincingly break 4200 (on the S&P) is a concern for the bulls and that could lead to a marginal strengthening of the dollar,” he said.
S&P 500 futures fell 0.1%, while blue-chip stocks in Europe fell. The STOXX 600 Index (.STOXX) fell 0.25%, as gains in the banking sector (.SX7P) were offset after HSBC (HSBA.L) made bumper profits, and it was offset by losses in oil and gas stocks after BP (BPL) decided to Reduce the stock repurchase program.
In currency markets, the Australian dollar was the standout performer, rising 1.3% following the Reserve Bank of Australia’s decision to raise interest rates, after it indicated in its recent policy meeting that it may not tighten monetary policy any further.
“One of the things I’m stuck with is that they keep saying they might need to raise interest rates,” said Joe Capurso, a strategist at the Commonwealth Bank of Australia.
“In addition to the increase today, this supports the Australian dollar,” he said. That could fade, he said, as there is a “reasonable chance” the Federal Reserve will take a similar approach at its meeting on Wednesday.
The dollar fell 0.1% against a basket of major currencies, while the euro settled at $1.0974.
In general, the mood in the market was charged. US President Joe Biden on Monday summoned the top four congressional leaders to the White House next week after Treasury Secretary Janet Yellen said Treasury funds could run out to cover liabilities as soon as June 1.
US credit default swaps – which reflect the cost of insuring against default – traded at their highest level in years on Tuesday, while yields on one-month Treasury notes were near their highest levels since 2007.
TraderX’s Brown said the risk of the US government running out of funds is low, but that hasn’t stopped traders from preparing for such an eventuality.
“The problem is, if you’re a trader, or a risk manager, and you don’t hedge appropriately and this time around, it turns out differently, you’re going to have a very difficult conversation with your boss,” he said.
“You almost have to hedge against something that isn’t going to happen, just in case it doesn’t.”
Meanwhile, the sale of First Republic Bank’s (FRC.N) assets to JPMorgan Chase (JPM.N) sent a degree of stability to the stocks of other regional lenders, such as PacWest (PACW.O) and Citizens Financial (CFG.N), which declined significantly. Only modest, down 0.3-0.5%.
But the markets are still concerned about what might be the next boot for the decline, even if the initial response is positive.
JPMorgan shares rose 0.2% on Tuesday, with CEO Jamie Dimon telling analysts: “This part of the crisis is over.”
In commodities, Brent crude futures settled at $79.32 a barrel, after falling below $80 on Monday, as concern about the global economy deepened. Copper rose for a fourth day, after losing more than 2% the previous week.
Edited by Shri Navaratnam
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