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Fed pause talk fuels worries about economy
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ECB raises rates at slower pace, says more needed
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U.S. banks put pressure on Wall Street indexes
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Gold adds to previous session's gains
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Graphic: World FX rates By Sinéad Carew and Marc Jones NEW YORK, LONDON, May 4 (Reuters) - A global measure of stocks was lower while the dollar gained some ground as the European Central Bank raised rates on Thursday and signalled the need for more tightening a day after the U.S. Federal Reserve also raised rates. U.S. Treasury yields were lower while oil prices slowed their decline after a massive two-day sell off. Along with investor indigestion over central bank messaging, Wall Street stock indexes were also under pressure from another rout in U.S. bank shares, which have reeled from the collapse of a third major regional bank over the weekend. European stocks were lower after the ECB, the central bank for the 20 countries that share the euro currency, raised interest rates by 25 basis points to 3.25% and signalled that more tightening would be needed to tame inflation. In contrast to the ECB, the Fed had implied that its marathon hiking cycle may be drawing to a close.
While the idea of a pause in U.S. rate hikes was welcome
news for U.S. investors, it comes with the implication that the
economy is slowing, said Lauren Goodwin, economist and portfolio
strategist at New York Life Investments in New York.
"This balance between potential interest rate stability and an increase in recession risk is what markets are trying to digest today," said Goodwin.
In particular, the economist saw the Fed's reference to tightening credit conditions as a confirmation of her expectations of an economic downturn.
"It's highly unlikely we'll avoid a recession," Goodwin said. "We're on a clear path toward a recession in the next few months." The Dow Jones Industrial Average fell 318.12 points, or 0.95%, to 33,096.12, the S&P 500 lost 29.89 points, or 0.73%, to 4,060.86 and the Nasdaq Composite dropped 54.36 points, or 0.45%, to 11,970.97. The pan-European STOXX 600 index had closed down 0.47% and MSCI's gauge of stocks across the globe shed 0.43%. Emerging market stocks rose 0.75%.
Adding to investor worries, another U.S. regional bank -
PacWest Bancorp - signalled troubles days after First
Republic collapsed.
Among currencies, the dollar gained against the euro as
investors digested the ECB's rate hike and commentary as well as
the Fed's hike and its indication that it may pause.
The dollar index rose 0.158%, with the euro down 0.42% to $1.1013.
The Japanese yen strengthened 0.48% versus the greenback
at 134.04 per dollar, while Sterling was last trading at
$1.2578, up 0.11% on the day.
In Treasuries, yields fell on Thursday as investors worried about regional banks and signs of a weakening economy.
Benchmark 10-year notes were down 5.4 basis
points to 3.349%, from 3.403% late on Wednesday. The 30-year
bond was last up 0.6 basis points to yield 3.7207%,
from 3.715%. The 2-year note was last was down 21.9
basis points to yield 3.7204%, from 3.939%.
In energy, crude oil prices stabilized after three straight
days of sharp declines due to demand concerns in major consuming
countries resulting from worries about the global economy.
U.S. crude settled down 0.06% at $68.56 per barrel
and Brent ended at $72.50, up 0.24% on the day.
Meanwhile, spot gold had touched its highest level in years
as U.S. banking concerns accelerated a flight to the safe-haven
asset and sustained its stellar rally driven by bets for a pause
in U.S. rate hikes.
Spot gold added 0.5% to $2,049.67 an ounce. U.S.
gold futures gained 0.95% to $2,047.90 an ounce.
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Global currencies vs. dollar Emerging markets MSCI All Country World Index Market Cap Fed hikes rates to levels last seen before financial crisis The race to raise rates ECB hawkishness to moderate ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Additional reporting by Harry Robertson in London and Rae Wee
in Singapore; Editing by Christina Fincher, Toby Chopra and
Deepa Babington)
