US equities advanced at the open in New York on Thursday as investors digested several central bank rate hikes that came despite turmoil in the banking sector.
The blue-chip S&P 500 rose 1.2 percent while the tech-heavy Nasdaq Composite gained 1.5 percent as both indexes recovered some of the previous session’s losses.
Late on Wednesday, the U.S. Federal Reserve continued to raise interest rates by 0.25 percentage points, but signaled that further rate hikes to curb inflation could be nearing the top.
On Thursday, the Bank of England raised its benchmark interest rate by 0.25 percentage points, also anticipated by the market. The Swiss National Bank and Norway’s central bank also raised interest rates on Thursday.
Wall Street rose despite losses in Europe. The Stoxx 600 in the regions fell 0.4 percent, while Germany’s Dax was flat and the CAC 40 in Paris was 0.2 percent weaker. London’s FTSE 100 lost 0.8 percent.
“When you see the Fed cutting rates more compared to European central banks, that supports the difference. [between US and European equities]”said Geoffrey Yu, strategist at BNY Mellon.
In its monetary policy statement on Wednesday, the Fed dropped previous references to the need for “sustained” rate hikes. The swaps market was unchanged at its next meeting in May, with outside opportunities rising again. The dollar fell 0.1 percent against a basket of other currencies.
“Balanced by the Fed’s desire to keep pressure on inflation, and the reality of tightening credit conditions and bank lending appetite, we think the Fed could still produce another 25bp hike in May,” said Tai Hui, head of Asia-Pacific market strategy. at JPMorgan Asset Management.
US Treasuries advanced on Thursday, with the yield on the 10-year note falling 0.02 percentage points to 3.48 percent. Yields on two-year notes, which are closer to short-term interest rate expectations, fell 0.04 percentage points at 3.93 percent. Yields move inversely to price.
Sterling rose 0.4 percent against the dollar after the BoE decision while the yield on the two-year gilt contract was down 0.1 percentage point at 3.35 percent. The yield on the 10-year note fell 0.04 percentage points to 3.41 percent.
The Fed also balanced the role of higher rates on the worst banking turmoil since the financial crisis of 2008. The central bank said that the US banking system is “sound and resilient”, but the degree of effect from Silicon Valley and the Collapse of Signature Banks is still uncertain.
The KBW Bank Index, which tracks shares in 24 large and medium-sized banks, rose 0.7 percent, down nearly 5 percent the day before after Treasury secretary Janet Yellen rejected an expansion of deposit insurance to protect savers. Shares in San Francisco-based First Republic, which this week hired advisers to explore options including a sale, gained 5.4 percent. In Europe, the Stoxx index of 600 banks fell by 1.3 percent.
The banks are in turmoil
The global banking system has been rocked by the collapse of Silicon Valley Bank, Signature Bank and the last-minute rescue of Credit Suisse by UBS. Check out the latest analysis and commentary here
“It seems that the market has advanced a little in the past few days, after Janet Yellen suggested that the Treasury could take the same steps with Silicon Valley Bank and Signature with other banks,” said Andrew Hunter, deputy chief economist of the US at Capital Economics. “The market is beyond that to assume there will be a blanket deposit insurance. There have been calls, but never a serious proposal.
Equities in Asia declined, with Japan’s Topix shedding 0.3 percent and Australia’s S&P/ASX 200 down 0.7 percent. Hong Kong’s Hang Seng index added 2.3 percent while China’s CSI 300 gained 1 percent and South Korea’s Kospi rose 0.3 percent.