Wednesday, April 24, 2024

US stocks fall on rising concerns about the economic outlook


US stocks fell on Wednesday after a fresh batch of bank earnings disappointed investors, fueling fears of a possible recession.

Wall Street’s benchmark S&P 500 slipped 0.2 percent in morning trading in New York, with basic materials, energy and technology stocks among the worst performers. The tech-heavy Nasdaq Composite, which is up 15 percent this year, lost 0.1 percent.

Europe’s region-wide Stoxx 600 fell 0.1 percent while Germany’s DAX rose by a similar amount.

A slowdown in dealmaking following Morgan Stanley’s first-quarter results hit sentiment in the US after an earnings miss, causing its shares to slide 0.6 per cent. Citizens Financial Group lost 2.5 per cent after deposits fell 5 per cent in the first three months of the year. Tesla is scheduled to report its earnings later in the day. Goldman Sachs said on Tuesday that its first quarter profit had declined by 18 per cent. The KBW Nasdaq Bank Index was up 0.2 percent.

US equity markets have ticked higher so far this year despite the failure of three mid-sized lenders in March, although there is some doubt as to how much higher stocks have left to rise.

“Despite the moves over the past month, there is near-unanimity in client interactions that they are bearish,” said analysts at JP Morgan. Meanwhile Bank of America’s latest fund managers’ survey showed that fears of a credit crunch mean investment in equities relative to bonds has fallen to its lowest level since the Great Financial Crisis.

The yield on the two-year Treasury rose 0.06 percentage points to 4.26 percent, its highest level in a month, and the yield on the 10-year debt also rose 0.06 percentage points to 3.63 percent.

Elsewhere, London’s FTSE 100 lost 0.1 percent after Britain’s annual consumer price rise came in lower than expected at 10.1 percent last month, up from 10.4 percent in February. Economists had expected a decline of 9.8 per cent.

Core inflation was unchanged at 6.2 percent, but was kept higher due to further sharper prices for food, entertainment and culture. The pound was trading up 0.1 per cent at $1.243 against the dollar.

UK economist Paul Dales, chief UK economist at Capital Economics, said the March data meant “it is even more likely” the Bank of England will raise interest rates to 4.5 per cent in May. “This release also makes us wonder if it won’t peak.”

UK government bonds sold off on Wednesday morning, with the yield on interest rate-sensitive two-year gilts rising 0.13 percentage points to 3.81 per cent – the highest level since late February. Futures markets now expect UK interest rates to peak at 5 per cent in November, compared with 4.78 per cent in September ahead of March inflation data.

“It is now clear that the UK has an inflation problem that is worse and more persistent than Europe and the US,” said Ed Monk, associate director at investment management company Fidelity International.

Asian shares retreated, with Hong Kong’s Hang Seng index down 1.4 per cent and China’s CSI 300 index down 0.9 per cent, down from their highest levels since early February.