Stocks ease; Aussie dollar soars after surprise hike
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[May 02, 2023] By
Amanda Cooper
LONDON (Reuters) -Global shares fell on Tuesday as caution set in ahead
of the Federal Reserve's upcoming policy meeting, while bumper profits
at Europe's biggest bank gave financial stocks a boost.
The Australian dollar soared after the central bank stunned markets with
a surprise interest rate hike, while in U.S. markets short-dated
government bond yields shot up after the Treasury Department said it
could run out of the cash it needs to pay its bills by early June.
The Fed is expected to raise interest rates by a quarter of a point on
Wednesday, but with so much anxiety around the tug-of-war over the
government's debt limit, as well as the stability of the banking sector
after the failure of a third U.S. lender in two months, money markets
show investors think this will be the last hike.
"No one is going to want to do too much before we get to that FOMC
decision. It’s a case of positions being placed in advance of that Fed
meeting," TraderX strategist Michael Brown said.
"Equities look to be retracing a bit today, the fact that we couldn't
convincingly break 4,200 (on the S&P) is a bit of a concern for the
bulls and that may strengthen the dollar marginally," he said.
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S&P 500 futures eased 0.1%, while blue-chip stocks in Europe declined.
The STOXX 600 fell 0.20%, as gains in the banking sector - after HSBC
rose 5.5% on bumper profits and restoring dividend payments - were
offset by losses in oil and gas shares following BP's decision to pare
back its share buyback programme.
In currency markets, the Aussie dollar was the standout performer,
rising by as much as 1.3% after the Reserve Bank of Australia's decision
to raise interest rates, having indicated at its last policy meeting
that it may not tighten monetary policy any further.
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"One of the things that sticks out to me is that they're still saying
they might need to increase interest rates," said Commonwealth Bank of
Australia strategist Joe Capurso.
"So as well as the increase today, that's supporting the Aussie dollar,"
he said.
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The London Stock Exchange Group offices
in the City of London, Britain, December 29, 2017. REUTERS/Toby
Melville/File Photo
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The U.S. dollar was steady against a basket of major currencies,
while the euro eased 0.1% to $1.097.
Overall, the mood in markets were fraught. U.S. President Joe Biden
on Monday summoned the four top congressional leaders to the White
House next week after Treasury Secretary Janet Yellen said the
Treasury might run out of money to cover obligations as soon as June
1.
U.S. credit default swaps - which reflect the cost of insuring
against a default - were trading at their highest in years on
Tuesday, while yields on one-month Treasury bills neared their
highest since 2007.
The risk of the U.S. government actually running out of money is
low, TraderX's Brown said, 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
haven't hedged appropriately and this time, it does turn out to be
different, you're going to be having a very difficult conversation
with your boss," he said.
"You're almost forced to hedge for something that isn't going to
happen, just on the off-chance that it does happen."
Meanwhile, the sale of First Republic Bank's assets to JPMorgan
Chase delivered a degree of stability to the shares of other
regional lenders, with PacWest and Citizens Financial easing only
modestly, down 0.3-0.5%.
But markets are still anxious about what may be the next crisis,
even if the initial response has been positive.
JPMorgan shares were flat in Tuesday's premarket, and chief
executive Jamie Dimon told analysts: "This part of the crisis is
over."
In commodities, Brent crude futures fell 0.6% to $78.80 a barrel,
having dropped below $80 on Monday, as concern deepened about the
global economy. Copper rallied for a fourth day, having lost over 2%
the previous week.
(Additional reporting by Tom Westbrook in SingaporeEditing by
Christina Fincher and Mark Potter)
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