US shares rose on Thursday, taking Europe’s lead, as investors assessed the future path of monetary policy following weeks of turmoil for banks on both sides of the Atlantic.
Wall Street’s benchmark S&P 500 closed 0.6 per cent higher, with all industries advancing except for financials. JPMorgan and Morgan Stanley lost 0.3 per cent and 0.1 per cent, respectively, while Wells Fargo slid more than 1 per cent. The Nasdaq Composite gained 0.7 per cent.
The S&P and the Nasdaq have edged higher over the past month, with gains for technology stocks helping to offset severe stress in the financial sector.
Europe’s regional Stoxx 600 added 1.1 per cent on Thursday, reaching its highest level in two weeks.
The moves in equities came ahead of a closely watched inflation reading on Friday — the personal consumption expenditures index — which traders will scrutinise for clues about the road ahead for interest rate rises. The Federal Reserve’s preferred measure of US price growth is expected to have slowed to 5.1 per cent in February on a headline basis, year over year, from 5.4 per cent in January.
Ahead of that reading, top Fed official Susan Collins said that she anticipated one more quarter-point interest rate rise, stating at a conference on Thursday that there is “more work to do” to return to the central bank’s 2 per cent inflation target.
Interest rates in the world’s largest economy sit in a range of 4.75-5 per cent — up from near-zero just over a year ago — following the Fed’s most aggressive campaign of monetary policy tightening in decades.
President Joe Biden also called on banking regulators on Thursday to toughen the supervision and regulation of large regional banks, as the White House announced reforms it would back following the failure of Silicon Valley Bank.
Government bonds fluctuated, with the yield on the policy-sensitive two-year Treasury note up 0.03 percentage points at 4.1 per cent. The yield on the 10-year Treasury dipped 0.02 per cent to 3.55 per cent as its price ticked higher.
Earlier in the day, fresh data showed that German inflation had fallen less than expected to 7.8 per cent in the year to March, from 9.3 per cent in February, as last year’s sharp rise in energy costs dropped out of the index. Economists polled by Reuters had expected a reading of 7.5 per cent.
Meanwhile, Spain’s inflation slowed to an annual rate of 3.1 per cent, lower than the 4 per cent forecast by economists polled by Reuters.
“Has the disinflationary process started? We don’t think so,” said Carsten Brzeski, global head of macro at ING. “There are still few if any signs of any disinflationary process outside of energy and commodity prices.”
The mixed inflation figures pose a dilemma for rate setters at the European Central Bank, which earlier this month raised its benchmark deposit rate from 2.5 per cent to 3 per cent. Markets broadly expect a further quarter percentage point rise when the ECB next meets.
There is less consensus on how the Fed will proceed, however, with some traders expecting the federal funds rate to remain unchanged in early May following the failure of three domestic midsized lenders this month.
Overnight, Asian equities ended mixed. Hong Kong’s Hang Seng index added 0.5 per cent, China’s CSI 300 gained 0.8 per cent and Japan’s Topix lost 0.6 per cent.
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