ASX set to open lower despite Wall Street rebound

Each of the last two big bank failures this month met such a “systemic risk exception.” Depositors were promised all their money, even those with more than the $US250,000 ($373,340) limit insured by the Federal Deposit Insurance Corp.

Most stocks in the financial industry were up after falling a day before. But First Republic Bank, which has been at the centre of investors’ crosshairs the last couple of weeks because of the industry’s crisis, was yo-yoing. It was recently down 4.9 per cent after rising nearly 10 per cent in the morning.

The second- and third-largest US bank failures in history occurred earlier this month after customers at Silicon Valley Bank and Signature Bank rushed to pull out money all at once.

One factor hurting banks is how much the Fed has raised interest rates over the last year. Rate hikes are meant to get inflation under control, but they’re a very blunt tool that slows the entire economy.

That raises the risk of a recession later on, and it also drags down prices for stocks, bonds and other investments. For Silicon Valley Bank and others, it meant losses for the bond investments they had made, even in things like super-safe Treasury bonds.

The fear is that all the turmoil in the banking industry could cause a sharp pullback in lending to small and midsized businesses around the country. That could put more pressure on the economy, raising the risk for a recession that many economists already saw as likely.

The Fed’s Powell said such fears were part of the reason the central bank raised rates by only a quarter of a percentage point on Wednesday instead of more. A pullback in lending could act almost like a rate hike on its own, he said.

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The Fed has raised its key overnight rate to a range of 4.75 per cent to 5 per cent, up from virtually zero at the start of last year. Its policymakers indicated they might raise rates one more time this year before holding steady through the end of this year.

In markets abroad, stocks in London slipped 0.6 per cent after the Bank of England also raised its key rate by a quarter of a percentage point. Stocks were mixed elsewhere across Europe and Asia.

On Wall Street, shares of Coinbase Global fell 11.7 per cent after the cryptocurrency trading platform said it had been warned by the U.S. Securities and Exchange Commission that it could face charges of violating federal securities laws.

In the U.S. bond market, which has been home to some of Wall Street’s wildest moves this month, yields were mixed.

The yield on the two-year Treasury dropped to 3.90 per cent from 3.97 per cent late Wednesday. It was above 5 per cent earlier this month.

AP

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