ASX set to open lower despite Wall Street rebound

By Stan Choe

Stocks have bounced back on Wall Street, clawing back some of their steep losses from a day before, when markets tumbled into the close.

The S&P 500 was 0.8 per cent higher in mid-afternoon trade, the Dow Jones added 0.5 per cent and the Nasdaq rose by 1.3 per cent. The Australian sharemarket is set to edge lower despite the positive lead, with futures at 5.04am AEDT pointing to a dip of 16 points, or 0.2 per cent, at the open. The ASX lost 0.7 per cent on Thursday.

Wall Street has had a rollercoaster week.
Wall Street has had a rollercoaster week.Credit:NYSE

A day earlier, stocks fell sharply after the Federal Reserve indicated that while the end may be near for its market-rattling hikes to interest rates, it still doesn’t expect to cut rates this year. Markets lost momentum after Fed chair Jerome Powell said that, along with an insistence that it could keep raising rates if inflation stays high.

But traders on Thursday were still largely betting the Fed will cut rates later this year. Such cuts can act like steroids for markets, juicing prices for stocks, bonds and other investments. They would relax the pressure on the economy, but they could also give inflation more fuel.

Big technology and other high-growth stocks that tend to benefit the most from lower rates were leading the way on Wall Street. Nvidia rose 3.4 per cent, Microsoft gained 3 per cent and Apple climbed 1.8 per cent.

Some analysts were also saying comments from Treasury Secretary Janet Yellen that may have dragged down bank stocks on Tuesday weren’t much different from what she’s said before.

She said the government is not considering blanket protections for all customers at all banks, something that could have prevented the kinds of runs on banks that have already toppled two in the couple of weeks. That may have disappointed some investors hoping for a more comprehensive solution. But Yellen did say the government will make all depositors whole at banks on a case-by-case basis, when failing to do so would mean risk for the broader system.

“However, in testimony last week, she hinted that all banks will be considered systemically important, so that uninsured deposits would be covered if a relatively small bank fails in the days ahead,” Mark Haefele, chief investment officer at UBS Global Wealth Management, wrote in a report.


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.

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.


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