- AUD up 1% after RBA stuns with rate hike
- T-Bills hit debt ceiling
- HSBC, BP earnings in focus
SINGAPORE, May 2 (Portal) – Global stocks fell on Tuesday as caution mounted ahead of the forthcoming Federal Reserve meeting, while record profits at Europe’s largest bank gave financial stocks a boost.
The Australian dollar rose after the central bank stunned markets with a surprise rate hike, while US markets saw short-dated government bond yields soar after the Treasury Department said it would run out of cash to pay its bills by early June could .
The Fed is expected to hike interest rates by a quarter point on Wednesday, but with so much concern over the government’s debt ceiling tug-of-war and the health of the banking sector after a third of US lenders defaulted in two months, money markets are showing that investors believe this will be the last hike.
“No one is going to want to do too much before we get to this FOMC decision. It’s about placing positions ahead of this Fed meeting,” said TraderX Strategist Michael Brown.
“Stocks appear to be pulling back a bit today, the fact that we haven’t been able to convincingly break 4200 (on the S&P) is worrying the bulls a bit and that may give the dollar a small boost,” he said.
S&P 500 futures fell 0.1%, while blue chip stocks in Europe fell. The STOXX 600 (.STOXX) fell 0.20% as earnings in the banking sector (.SX7P) – after HSBC (HSBA.L) rose 5.5% on record profits and a resumption of dividend payments – on subsequent losses oil & gas stocks were offset by BP’s (BP.L) decision to scale back its share buyback program.
In the currency markets, the Aussie dollar was the standout performer, gaining as much as 1.3% following the Reserve Bank of Australia’s decision to hike interest rates after hinting at its last monetary policy meeting that it might tighten monetary policy will not tighten further.
“One of the things that strikes me is that they’re still saying they might have to raise interest rates,” said Commonwealth Bank of Australia strategist Joe Capurso.
“Like today’s rise, this is supportive for the Australian dollar,” he said.
The US dollar was steady against a basket of major currencies, while the euro fell 0.1% to $1.097.
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Overall, the mood on the markets was tense. US 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 Department would…
US credit default swaps — which reflect the cost of insuring against default — traded at their highest levels in years on Tuesday, while one-month Treasury bill yields hit their highest levels since 2007.
The risk of the US government actually running out of money is slim, 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 yourself properly and this time turns out to be different, you’re going to have a very difficult conversation with your boss,” he said.
“You’re almost forced to hedge against something that’s not going to happen, just on the off chance that it does.”
Meanwhile, the sale of First Republic Bank (FRC.N) assets to JPMorgan Chase (JPM.N) has added some stability to shares in other regional lenders, including PacWest (PACW.O) and Citizens Financial (CFG.N). yield only slightly, by 0.3-0.5%.
But markets are still concerned about what the next crisis might be, even if the initial reaction has been positive.
JPMorgan shares were flat in Tuesday’s pre-market, and Chief Executive Jamie Dimon told analysts, “That part of the crisis is over.”
In commodities, Brent crude futures fell 0.6% to $78.80 a barrel after falling below $80 on Monday amid mounting concerns about the global economy. Copper rallied for a fourth day after losing over 2% in the previous week.
Edited by Shri Navaratnam
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