ASX set to open lower as Wall Street falls on bank turmoil

At the start of this week, regulators seized First Republic Bank and sold most of it to JPMorgan Chase, with hopes that could bolster confidence in the industry. Officials have stressed they see the banking system is sound and secure, but the worries aren’t leaving the market.

Banks are dealing with drastically different business conditions now that interest rates are no longer at record lows. The Federal Reserve on Wednesday announced its latest increase, which took its key overnight rate up to a range of 5 per cent to 5.25 per cent from virtually zero early last year.

The Fed has jacked up rates at the fastest pace in decades to knock down high inflation. But it does that by slowing the economy, raising the risk of a recession and hurting prices for investments. Many of the loans made and bonds bought by banks when rates were low are suddenly worth much less in today’s market.

The worry now is that even if no more banks topple, the industry’s turmoil could cause smaller and mid-sized banks to pull back on their lending. That in itself could act like rate hikes, which would further smother the economy. Many investors already believe a recession will hit later this year.

A report on Thursday showed that the number of US workers filing for unemployment last week accelerated a bit more than expected. The job market has remained largely resilient, and it’s one of the main pillars still propping up the slowing economy. A more comprehensive report on Friday will give the latest monthly update on the overall job market.

With worries rising about the economy, the Fed indicated Wednesday that it may be done hiking interest rates for the moment. But the European Central Bank on Thursday pressed on. Its president, Christine Lagarde, said that it has “more ground to cover, and we are not pausing.” It did slow the pace of its hikes, raising rates by only a quarter of a percentage point.

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Higher rates mean investors are getting paid higher yields for owning bonds, which in turn offers more protection for future shakiness in the market, Allspring’s Bory said. “Investing in fixed income today is actually kind of the best it’s been in one and a half decades,” he said.

Helping to support stocks despite all the worries has been a largely better-than-feared earnings reporting season. Companies in the S&P 500 are still on track to report a second straight quarter of profit drops, but the results have mostly been better than expected.

Ball gained 13.4 per cent after the maker of aluminum cans and other packaging reporting stronger profit than expected.

Kenvue, the consumer health business spun off by Johnson & Johnson, soared 22.3 per cent in its first trading following its initial public offering. Its brands include Band-Aids, Listerine and Tylenol.

All told, the S&P 500 fell 29.53 points to 4,061.22. The Dow dropped 286.50 to 33,127.74, and the Nasdaq fell 58.93 to 11,966.40.

AP

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