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Oil prices tumble on economic concerns
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U.S. Treasury yields fall sharply, U.S. dollar down
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Major U.S. stock indexes fall ~1%
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Bank, energy sectors outperform broader market
(Updates price changes after U.S. stock market close)
By Sinéad Carew
NEW YORK, May 2 (Reuters) - Wall Street stock indexes
closed lower on Tuesday, a day ahead of the Federal Reserve's
interest rate decision, while U.S. Treasury yields fell as
investors worried the government could run out of cash after
June 1 without a debt ceiling hike.
Bank stocks underperformed sharply after the weekend failure of U.S. regional bank First Republic Bank .
Energy shares tumbled as oil prices fell 5% to a five-week low on concerns about the economy as U.S. politicians argued about how to avoid a debt default and investors prepare for another interest rate hike this week. The dollar index dipped after disappointing U.S. data a day before that the Fed is expected to hike rates by an additional 25 basis points and give guidance on whether it plans to raise rates further in June.
Top U.S. Senate Republicans on Tuesday called on President Joe Biden to accept their party's debt-ceiling package or make a counter-offer, while a top Democrat said the Senate might try to advance a "clean" debt-ceiling hike next week. Late on Monday, the Treasury Department had said the U.S. could run out of the cash needed to pay its bills in the next month.
Meanwhile regional U.S. banks posted massive declines, dragging the S&P 500 bank index down 3.2% after the failure over the weekend of First Republic and the agreed sale of its assets to JPMorgan Chase .
Trading on Tuesday reflected growing investor worries that
more banks would start to show steep deposit outflows like First
Republic, the third major U.S. bank to collapse since March,
said Michael James, managing director of equity trading at
Wedbush Securities in Los Angeles.
"Couple that with the Fed's rate decision tomorrow and
you've elevated levels of anxiety in financials spilling over
the market in general ... the debt ceiling limit is part of an
elevated anxiety," James said.
The Dow Jones Industrial Average fell 367.17 points,
or 1.08%, to 33,684.53, the S&P 500 lost 48.29 points, or
1.16%, to 4,119.58 and the Nasdaq Composite dropped
132.09 points, or 1.08%, to 12,080.51.
MSCI's gauge of stocks across the globe shed
0.96%. Emerging market stocks lost 0.26%.
Michael O’Rourke, chief market strategist at JonesTrading in Stamford, Connecticut, said "investors are recognizing that there's challenges in the near term," citing headwinds including the Fed meeting, the looming debt ceiling and bank concerns as well as weak economic data.
Data showed U.S. job openings fell for a third straight
month in March even as they remained at levels consistent with a
tight labor market.
In currencies, the dollar index , which measures the greenback against a basket of major currencies, fell 0.245%, with the euro up 0.25% to $1.1002.
The Japanese yen strengthened 0.73% versus the greenback at 136.50 per dollar, while sterling was last trading at $1.2471, down 0.20% on the day. U.S. Treasury investors strengthened bets that the Federal Reserve will reverse its interest rate-hiking course sooner than expected, amid a wide sell-off in regional bank stocks and signs that government funds will run short by June.
The benchmark 10-year Treasury note yields were
down 14.4 basis points to 3.430%, from 3.574% late on Monday.
And the 30-year bond was last down 10.7 basis points
to yield 3.7101% while the 2-year note was last was
down 15.3 basis points to yield 3.986%, from 4.139%.
U.S. crude oil futures settled down $4 or 5.29% at
$71.66 per barrel and Brent finished at $75.32, down
$3.99 or 5.03% on the day.
Gold extended gains, on track for its biggest daily gain in a month, as yields dropped on renewed fears of contagion in the U.S. banking sector and ahead of the Fed's rate decision. Spot gold added 1.8% to $2,016.79 an ounce. U.S. gold futures gained 1.64% to $2,015.90 an ounce. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ World FX rates YTD Global asset performance Debt ceiling crisis and U.S. stocks ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Additional reporting by Amanda Cooper in London, Tom Westbrook in Singapore Editing by Mark Potter, David Gregorio and Josie Kao)
