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US equities gain as banking fears take back seat to Fed Investors turn focus to next rate decision as Treasury secretary Janet Yellen signals backing for regional lenders Futures markets predict the Federal Reserve will raise rates by 0.25 percentage points on Wednesday © Financial Times US equities gain as banking fears take back seat to Fed on twitter (opens in a new window) US equities gain as banking fears take back seat to Fed on facebook (opens in a new window) US equities gain as banking fears take back seat to Fed on linkedin (opens in a new window) Save current progress 99% Martha Muir in London, Jaren Kerr in New York and William Langley in Hong Kong 8 HOURS AGO 9 Print this page Receive free US equities updates We’ll send you a myFT Daily Digest email rounding up the latest US equities news every morning. US stocks advanced on Tuesday as investors appeared to be assuaged by efforts to reduce the risk of contagion in the financial system and looked towards the Federal Reserve’s next interest rate decision. The blue-chip S&P 500 index added 1.3 per cent and the tech-heavy Nasdaq Composite climbed 1.6 per cent, rising for a second day. The KBW Nasdaq Bank index gained 5 per cent, while beleaguered California-based lender First Republic climbed 29.6 per cent, having fallen by nearly a half on Monday. Banks have steadied after regulators moved to support lenders caught in financial sector tumult following the failures of Silicon Valley Bank and two other US lenders this month. US Treasury secretary Janet Yellen signalled on Tuesday the government would back all deposits at smaller US banks if needed. Sam Gunter, head of FX trading at Britannia Global Markets, said: “Over the past few days there has been a continued sentiment of support for the banking sector, including from [European Central Bank president] Christine Lagarde saying they would act on inflation and financial stability, and Janet Yellen showing her support for regional banks. “That’s why we’re seeing equity markets push up and safe haven assets like gold and the yen lose ground.” Investors are turning their attention to decisions on interest rates from the US and British central banks this week. Turmoil in the global banking sector has eased expectations about the scale of interest rate increases to combat inflation. The Fed decision will come after a two-day meeting that started on Tuesday. Futures markets predicted on Wednesday the US central bank would raise rates by 0.25 percentage points from its current level of between 4.50 per cent and 4.75 per cent. Gennadiy Goldberg, US rate strategist at TD Securities, said Yellen’s comments about protecting regional US banks have freed up the Fed to focus on cooling inflation by raising interest rates, rather than pausing to calm concerns about banking instability. “If there are more announcements from Treasury and the government overall, I do think that could stabilise the market and actually allow the Fed to continue to tighten policy,” he said. “If they stop hiking now, it’s going to be pretty tough for them to restart rate hikes . . . By hiking 25 [basis points], it almost maintains the optionality to continue hiking in future meetings.” The Bank of England meets on Thursday, but pricing from the swaps markets indicates investors are divided between a 0.25 percentage point increase and no change. “The question now is whether banking sector problems are enough to tip the BoE into holding rates,” said analysts at Bank of America. “Greater uncertainty over the economic outlook as well as potentially tighter credit conditions could therefore tip the BoE into holding rates.” The yield on the two-year Treasury note, which closely follows interest rate expectations, jumped 0.22 percentage points to 4.17 per cent on Tuesday while the yield on the 10-year note rose 0.11 percentage points to 3.59 per cent. Yields move inversely to price. Yields on two-year German Bunds leapt 0.31 percentage points to 2.63 per cent, while the 10-year notes rose 0.2 percentage points to 2.29 per cent. European stocks also extended their gains on Tuesday as investors took heart from regulatory moves to contain the risk of contagion in the financial system from weak banks. The Stoxx Europe 600 Banks index closed up 3.8 per cent, having gained 1.2 per cent in the previous session. Broader indices also advanced, with the region-wide Stoxx 600 rising 1.3 per cent, Germany’s Dax 1.8 per cent, France’s CAC 40 1.4 per cent and London’s FTSE 100 1.8 per cent. Credit Suisse and UBS, which announced plans to merge in a Swiss government-brokered deal on Sunday, rose 7.3 per cent and 12.1 per cent, respectively. As part of the merger deal, $17bn worth of Credit Suisse additional tier 1 (AT1) bonds, a type of higher-risk bank debt designed to take losses during a crisis, was wiped out, Swiss financial regulator Finma said at the weekend. That triggered a sell-off in AT1 bonds at other financial institutions on Monday, as investors worried that bondholders would have to take on bigger losses than shareholders of Credit Suisse, who were allocated UBS stock. “It is still very early days. The initial response [to the deal] was not positive but statements from the supervisory arm and policymakers seemed to have been taken pretty well,” said Jack Allen-Reynolds, deputy chief eurozone economist at Capital Economics. “We’re still in a weaker position but there are tentative signs that things aren’t getting worse.” Recommended First Republic Wall Street CEOs try to come up with new plan for First Republic In Asia Hong Kong’s Hang Seng index closed up 1.4 per cent and China’s CSI 300 gained 1.1 per cent. South Korea’s Kospi added 0.4 per cent. Japanese markets were closed for the spring equinox holiday. Asian banking stocks also gained, with the Hang Seng Finance index adding 1.4 per cent. HSBC and Standard Chartered gained 1.7 per cent and 4 per cent, respectively. Spot gold prices fell 2 per cent to trade at $1,939.50 per troy ounce after briefly touching their highest level since March 2022 on Monday. Oil prices continued to increase after rising more than 1 per cent on Monday. International benchmark Brent crude, and US equivalent WTI, gained 2.1 and 2.5 per cent, respectively.
