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Tag: bond markets

  • ‘Potent liquidity squeeze’ threatens stock market once debt-ceiling deal is done

    ‘Potent liquidity squeeze’ threatens stock market once debt-ceiling deal is done

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    Lawmakers and the White House appear set to avert a calamitous U.S. government default, but stock-market investors need to be aware that what comes next could still make for a bumpy ride.

    “Some time in the next several days, markets will trade their last bit of angst over raising the debt ceiling for what was always going to be the real problem — handling the massive fundraise by Treasury,” said Steven Blitz, chief U.S. economist at TS Lombard, in a Wednesday note warning of a “potent liquidity squeeze” ahead.

    For…

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  • Durable-goods orders get a boost from military spending

    Durable-goods orders get a boost from military spending

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    The numbers: Orders for manufactured goods jumped 1.1% in April largely because of the military, but business investment also rose sharply in a positive sign for the economy.

    Economists polled by the Wall Street Journal had forecast a 0.8% decline. Durable goods are items meant to last a long time.

    Yet orders fell 0.2% if transportation is excluded, the government said Friday. The transportation segment is a large and volatile category that often exaggerates the ups and downs in industrial production.

    The pace of orders has slowed sharply over the past year and is now just slightly positive. Orders rise in an expanding economy and shrink in a contracting one.

    In a good sign, business investment rose a sharp 1.4% after a string of weak readings. Companies invest more when they expect the economy to improve, but it remains to be seen if it’s the blip or the start of a trend.

    Big picture: The industrial side of the economy has largely been sidelined by rising interest rates and a shift in consumer spending away from manufactured goods.

    What has kept the economy afloat is an increase in spending on services such as travel, recreation and hospitality.

    The divide in the economy is likely to persist for while and leave the U.S. more susceptible to a recession.

    Market reaction: The Dow Jones Industrial Average
    DJIA,
    -0.11%
    and S&P 500
    SPX,
    +0.88%
    were set to open mildly higher in Friday trades.

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  • Goldman economists: U.S. Treasury funds will be exhausted by June 9

    Goldman economists: U.S. Treasury funds will be exhausted by June 9

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    Goldman Sachs economists Alec Phillips and Tim Krupa say the Treasury’s early June deadline for the debt ceiling looks “very accurate, in our view.” Their calculation is that by June 2, the Treasury’s room under the debt ceiling will barely exceed $30 billion — the minimum cash the Treasury has targeted in prior debt-limit projections — and entirely dry by June 9. They say odds are highest that a deal will be announced late Friday or Saturday. They give an 80% chance to a full-fledged deal, a 10% probability of a short-term patch and a 10% chance Congress doesn’t act in time.

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  • A debt-ceiling deal will spark a new worry: Who will buy the deluge of Treasury bills?

    A debt-ceiling deal will spark a new worry: Who will buy the deluge of Treasury bills?

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    When the U.S. debt-ceiling fight finally is resolved, the Treasury is expected to unleash a flood of bill issuance to help refill its coffers run low by the protracted standoff in Washington, D.C., over the government’s borrowing limit.

    Treasury bills are debt issued by the U.S. government that mature in four to 52 weeks. New bill issuance could reach about $1.4 trillion through the end of 2023, with roughly $1 trillion flooding the market before the end of August, according to an estimate from BofA Global strategists.

    They expect the deluge through August to be about five times the supply of an average three-month stretch in years before the pandemic.

    “The good news is that we have a high degree of confidence around who is going to buy it,” said Mark Cabana, rates strategist at BofA Global, in a phone interview with MarketWatch. “The bad news is that it’s not going to be at current levels. Things have to cheapen.”

    Cabana sees a key buyer of bill supply unleashed by a debt-ceiling deal in money-market funds, which have climbed to nearly $5.4 trillion in assets managed since the regional banking crisis erupted in March (see chart).

    So people who yanked billions of dollars in deposits from banks after the collapse of Silicon Valley Bank in March and parked them in money-market funds could end up playing an encore performance in this year’s debt-ceiling drama.

    Money-market funds swell since March, topping $5 trillion in assets


    BofA Global

    Related: Money-market funds swell to record $5.4 trillion as savers pull money from bank deposits

    $2 trillion at Fed repo facility

    Money-market funds have been the main reason why at least $2 trillion consistently sits overnight at the Federal Reserve’s reverse repo facility. The program was last offering a roughly 5% rate, a level Cabana said new Treasury bills might need to exceed by about 10-20 basis points.

    “It’s an unintended consequence of a debt-ceiling deal getting done,” said George Catrambone, head of fixed income Americas at DWS Group, about market expectations for heavy short-term Treasury bill issuance, but he also expects money-market funds, foreign buyers and other institutions auctions to continue as buyers in the market.

    “There’s always buyers. It’s a question of price.”

    President Joe Biden and House Speaker Kevin McCarthy, R-Calif. met Monday to talk about potential ways to raise the $31.4 trillion borrowing limit and to avoid a “doomsday” scenario in financial markets if the U.S. defaults. As talks resumed Wednesday, McCarthy said, “I think we can make progress today.”

    Congress has struck deals each time U.S. public debt has exceeded its debt ceiling in the past, including by suspending it eight times since 2016 (see chart).

    In the past when the U.S. debt-limit has been violated, Congress extended or suspended it


    Refinitive, RiverFront

    That doesn’t mean financial markets have been sitting by idly. The 1-month Treasury yield
    TMUBMUSD01M,
    5.616%
    rose to 5.6% on Wednesday, while the 3-month yield
    TMUBMUSD03M,
    5.350%
    was 5.3%, according to FactSet. Bill maturing around the “X-date,” which could come as soon as June 1, have even higher yields.

    Read: Debt-ceiling angst sends Treasury bill yields toward 6%

    “Those are obviously pretty heady yields,” Catrambone said. “But it also exemplifies the market having to price in potential market disruptions in the month of June,” even though his team, like many in financial markets, expect that eventually “cooler heads will prevail” in Washington as the debt-ceiling standoff heads down to the wire.

    Stocks were lower Wednesday, with the Dow Jones Industrial Average
    DJIA,
    -0.75%
    off almost 300 points, or 0.9%, on pace for a fourth day in a row of losses, according to FactSet. The S&P 500 index
    SPX,
    -0.83%
    was off 0.9% and the Nasdaq Composite Index was down 0.9%.

    How the money ran out

    The Treasury in January hit its borrowing limit and began operating under “extraordinary measures” to avoid a default.

    Cash balances at the Treasury Department have since dwindled to less than $100 billion, according to economists at Jefferies. Barclays strategists estimate its cash balance may fall below $50 billion between June 5-15.

    “Basically, we are just draining our cash account to fund operations while we wait to figure out the debt ceiling,” said Lindsay Rosner, senior portfolio manager at PGIM Fixed Income.

    But when the battle over the debt limit ends in a resolution, she expects longer-dated Treasury yields to increase, as haven buying on fears of potentially a full U.S. government default and a credit rating downgrade will have been taken off the table.

    “The Armageddon, whatever small probability people were pricing in of catastrophe, remove that,” she said. “And that means the worst economic outcome has been removed.”

    That’s also a reason why Rosner has been avoiding ultrashort Treasurys in the eye of the debt-ceiling fight in favor of 2, 3 or 4-year bonds offering some of the highest yields in years.

    “We’re being afforded good yield, good spread, a couple of years out the curve,” she said. “Play that game.”

    Read next: How will the Fed react to the debt ceiling breach? Here are some plays in the playbook.

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  • Debt-ceiling angst sends Treasury bill yields toward 6%

    Debt-ceiling angst sends Treasury bill yields toward 6%

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    Continued uncertainty about whether a debt-ceiling resolution can come together fast enough to avoid a government default pushed yields on Treasury bills maturing between early and mid-June toward 6% on Tuesday.

    The yield on Treasury bills maturing on June 6 touched that level before slipping slightly to 5.997% Tuesday afternoon, according to Bloomberg data. Meanwhile, the rate on T-bills maturing on June 8 was at 5.905%.

    In addition, the one-year T-bill issued in June 2022 and which matures on June 15 was yielding 6.141%, though analysts said that was likely being impacted by a government auction on Tuesday. That 6.141% yield was the highest of any government obligation maturing within two weeks after the so-called X-date of June 1 — when Treasury Secretary Janet Yellen said the government might be unable to pay all its bills if no action is taken on the debt ceiling.

    The Treasury bill market is where debt-ceiling angst has played out the most and Tuesday brought wild trading as investors questioned whether the government will be forced to miss payments after June 1. At the moment, the T-bill market is in a state of dislocation — one in which yields ranged from as little as 2.924% on the government obligation maturing on May 30 to as high as 6.141% on the 1-year bill maturing in three weeks.

    The higher the yield on a Treasury obligation, the more investors are demanding to be compensated for the risk of holding that bill. Yields also rise when investors are selling off or staying away from the underlying maturity. Tuesday’s moves suggest that investors and traders are factoring in at least some risk that the government could cross the X-date without a debt-ceiling resolution.

    Right now, the market regards bills maturing between June 6 and June 15 as “the most at risk for a delayed payment and no one wants to own” them, said Lawrence Gillum, the Charlotte, N.C.-based chief fixed income strategist at LPL Financial.

    “Ultimately, markets expect something to get done, but money managers who have to own those T-bills are not taking any chances,” he said via phone.

    For much of Tuesday, the broader financial market appeared to be relatively confident that a debt-ceiling agreement could be reached by June 1, a day after President Joe Biden and House Speaker Kevin McCarthy each described talks as “productive” on Monday. Then came word of McCarthy telling House Republicans on Tuesday that negotiators were nowhere near a deal yet, with Bloomberg citing Republican Representative Ralph Norman and another unidentified person in the room.

    All three major U.S. stock indexes
    DJIA,
    -0.69%

    SPX,
    -1.12%

    COMP,
    -1.26%
    finished lower, while Treasury yields beyond the 2-year rate slipped toward the end of Tuesday’s New York trading session — a sign of fading optimism in the outlook for the U.S. economy.

    Read: ‘Survival of the strongest’: How pandemic-era shifts may upend market’s recession narrative

    One of the financial market’s favorite indicators of impending U.S. recessions — the difference between the 2- and 10-year Treasury yields — has been persistently inverted since July 5, 2022. That’s the longest such streak since May 1980, and yet no recession has been declared so far by the only arbiters who matter, those at the National Bureau of Economic Research.

    On Tuesday, fed funds futures traders priced in a 28.1% chance of another quarter-point rate hike by the central bank in June, which would take the main policy rate target to between 5.25%-5.5%. They also factored in a slight 5.6% likelihood of another similar-size rate hike in July.

    Gillum and Greg Faranello, head of U.S. rates at AmeriVet Securities in New York, said they see a small chance of no debt-ceiling agreement by June 1. Under such a scenario, the Treasury market would fall into “disarray,” with T-bill yields spiking in a manner reminiscent of last year’s crisis of confidence in the U.K. bond market, they said. It would also make it harder for the Fed to hike rates on June 14, and likely lead to a flight-to-quality trade in longer-term Treasurys as equities sell off.

    See: ‘Doomsday machine’: Here’s what could happen if the debt ceiling is breached

    As of Tuesday, the T-bill market was “definitely showing some signs of stress, there’s no question about it,” Faranello said via phone. Meanwhile, “the economy is doing better than the narrative of recession,” even after the recent turmoil in regional banks, and a move toward 4% in the 10-year rate this year “can’t be ruled out.” However, that could change quickly based on the outcome of the debt-ceiling debate.

    Getting something done on the debt ceiling by June 1 “is going to be a challenge,” Faranello said. The risk of default “is small but not a zero-percent probability,” as is the prospect of chaos if negotiators come too close to the wire and create a period of confusion in the Treasury market.

    “At a minimum, there would be pretty severe economic damage” from a default or any confusion, it “could be chaotic,” and “you would see that impact on risk assets,” he said.

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  • Fed’s Bullard backs two more interest-rate hikes

    Fed’s Bullard backs two more interest-rate hikes

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    St. Louis Fed President James Bullard on Monday said he would like to see two more quarter-percentage-point interest-rate hikes this year.

    “I think we’re going to have to grind higher with the policy rate in order to put downward pressure on inflation,” Bullard said in a moderated discussion at the American Gas Association’s Financial Forum in Fort Lauderdale, Fla.

    Bullard said that the timing of the rate hikes was uncertain but that he has been an advocate of raising rates “sooner rather than later.”

    “You want to get the downward pressure while you can,” he said.

    The Fed raised its benchmark rate by 25 basis points to a range of 5%-5.25% at its meeting in May. That matches the median forecast of Fed officials for the peak interest rate in this cycle.

    Officials at the Fed are divided over whether to continue to hike rates at their meeting in mid-June or pausing to see how the economy is affected by lags from the rapid pace of hikes. Some officials don’t like the word “pause” and have described holding rates steady in June as a “skip,” because it underlines that they are not saying they are done raising rates.

    The markets think the Fed is done with rate hikes and have even been pricing in rate cuts later this year.

    Bullard said that the Fed’s forecast of no more hikes was based on its expectations of slower growth and a faster drop in inflation in the first half of the year than has been seen in subsequent data.

    “Inflation is hanging up too high,” Bullard said.

    Stocks
    DJIA,
    -0.24%

    SPX,
    +0.22%
    were set to open slightly higher on Monday, while the yield on the 10-year Treasury note
    TMUBMUSD10Y,
    3.716%
    rose to 3.7%.

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  • U.S. stocks end lower, but Nasdaq posts longest weekly win streak since February

    U.S. stocks end lower, but Nasdaq posts longest weekly win streak since February

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    U.S. stocks closed lower on Friday as investors focused on debt-ceiling talks in Washington D.C., which Republican Rep. Garret Graves of Louisiana, a deputy for House Speaker Kevin McCarthy, said were on pause. The Dow Jones Industrial Average
    DJIA,
    -0.33%
    ended about 109 points lower Friday, or 0.3%, near 33,426, but booked a 0.4% weekly gain. So did the other major U.S. indexes. The S&P 500 index
    SPX,
    -0.14%
    closed 0.2% lower, while booking a 1.6% weekly gain. The Nasdaq Composite Index
    COMP,
    -0.24%
    shed 0.2% Friday, but gained 3% for the week to advance for a fourth week in a row, its longest weekly stretch of wins since February 3, according to Dow Jones Market Data. Focus on Friday also was on regional banks after CNN reported that Treasury Secretary Janet Yellen said more mergers in the sector might be needed.

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  • Ray Dalio says debt-ceiling debate sets stage for ‘disastrous financial collapse’

    Ray Dalio says debt-ceiling debate sets stage for ‘disastrous financial collapse’

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    “‘Increasing the debt limit the way Congress and presidents have repeatedly done, and most likely will do this time around, will mean there will be no meaningful limit on the debt. This will eventually lead to a disastrous financial collapse.‘ ”


    — Ray Dalio, founder, Bridgewater Associates

    That’s billionaire investor and Bridgewater Associates founder Ray Dalio, warning via a post on LinkedIn that while the U.S. government is likely to avoid a first-ever debt default, a lack of effective restraint on spending spells big trouble ahead.

    Dalio wrote that he doesn’t expect the battle between the Biden administration and congressional Republicans over a debt-limit increase to lead to a default — or if it does, it will be resolved quickly. But any agreement is unlikely to deal with the “big issues” in a substantive way, and will instead likely tweak things in ways that won’t matter much, making no real commitment to cutting the deficit in future years.

    See: Debt-ceiling standoff: Here’s what could go into a bipartisan deal

    House Speaker Keven McCarthy, R-Calif., told reporters Thursday that he thinks an eventual bill to raise the borrowing limit needs to be on the House floor next week and that he can “see the path.” McCarthy and President Joe Biden have designated representatives to negotiate a deal while Biden is attending a G-7 meeting in Japan.

    Both have said they are confident a deal will be reached before the government is unable to pay its bills, which could come as early as June 1. Debt-ceiling worries have made for volatile trading in short-term Treasury bills that would be affected by a potential default, but concerns have yet to exert lasting pressure on the stock market.

    The Dow Jones Industrial Average
    DJIA,
    +0.34%
    rose 115.14 points, or 0.3%, on Thursday, while the S&P 500
    SPX,
    +0.94%
    rallied 0.9% to close at a nearly nine-month high.

    Read: ‘Doomsday machine’: Here’s what could happen if the debt ceiling is breached

    Dalio argues that continuing along the same path isn’t sustainable “because increasing debt assets and liabilities faster than income eventually makes it impossible to simultaneously pay lender-creditors a high enough real (i.e., inflation-adjusted) interest rate to have them hold the debt assets without having that real interest rate too high for the borrower-debtors to be able to service their debts.”

    When the amount of debt sold is greater than what debt buyers want to absorb, central banks must decide whether to let interest rates rise to balance the supply and demand, which will crush debtors and the economy, or print money to buy the debt. The latter option is inflationary and encourages debtholders to sell, making the debt imbalance worse.

    “In either case that creates a debt crisis that is like the runs on the banks that we have been seeing, but with government bonds being what is sold and the run on the bank being a run on the central bank,” Dalio wrote.

    At the same time. not increasing the debt limit will lead to default and to cutbacks on basics for those who can’t afford cutbacks, causing financial havoc and social upheaval, Dalio said.

    An agreement to raise the limit would ideally be accompanied by an agreement between Biden and McCarthy that overcomes the objections of the “more extreme” members of both parties, Dalio wrote, who either don’t want to lift the debt ceiling or aren’t willing to compromise on a long-term budget approach.

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  • Philadelphia Fed’s factory gauge shows ninth straight month of declining activity in May

    Philadelphia Fed’s factory gauge shows ninth straight month of declining activity in May

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    The numbers: The Philadelphia Federal Reserve said Thursday its gauge of regional business activity rose to negative 10.4 in May from negative 31.3 in the prior month. Any reading below zero indicates deteriorating conditions. This is the ninth straight negative reading and the eleventh in the last twelve months. 

    Economists polled by the Wall Street Journal expected a negative 20 reading in May.

    Key details: The barometer on new orders increased 13.8 points but remained at negative 8.9 in May. The shipments index rose slightly to negative 4.7.  The measure on six-month business outlook worsened to negative 10.3 in May from negative 1.5 in the prior month.

    Big picture: The continued contraction in activity is a sign that U.S. manufacturing continues to struggle.

    The Philadelphia Fed index is closely followed to give economists an advance signal of factory conditions across the country.

    The national ISM manufacturing index has been in contractionary territory for six months.

    Earlier this week, the similar Empire State survey released by the New York Fed showed manufacturing activity plummeted 42.6 points to negative 31.8 in May. 

    Market reaction: Stocks
    DJIA,
    -0.23%

    SPX,
    +0.05%
    were set to open mixed on Thursday. The yield on the 10-year Treasury note
    TMUBMUSD10Y,
    3.627%
    rose to 3.62%.

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  • Dow ends over 300 points lower, loses grip on gains for the year

    Dow ends over 300 points lower, loses grip on gains for the year

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    U.S. stocks closed lower on Tuesday, with losses deepening into the closing bell and the Dow losing its grip on gains for the year. The Dow Jones Industrial Average
    DJIA,
    -1.01%
    closed about 336 points lower, or 1%, ending near 33,012, according to preliminary FactSet figures. The S&P 500
    SPX,
    -0.64%
    shed 0.6% and the Nasdaq Composite Index
    COMP,
    -0.18%
    closed 0.2% lower, with all three indexes ending near the session lows. Stocks were under pressure as President Joe Biden was set to meet with four top U.S. lawmakers for talks on raising the federal government’s borrowing limit, with a goal of avoiding a market-shaking U.S. default. The White House Tuesday afternoon said Biden might cut short an overseas trip to deal with the debt-ceiling talks. For the year, the Dow was down 0.4% through Tuesday, while the S&P 500 was still up 7% and the Nasdaq was 17.9% higher, according to FactSet.

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  • Consumer sentiment tumbles to six-month low in May on renewed fears about U.S. economy

    Consumer sentiment tumbles to six-month low in May on renewed fears about U.S. economy

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    The numbers: The University of Michigan’s gauge of consumer sentiment fell to a preliminary May reading of 57.7 from an April reading of 63.5. That is the lowest level since November last year.

    Economists polled by the Wall Street Journal had expected a May reading of 63.

    Americans view on near-term inflation moderated slightly in May. They now expect the inflation rate in the next year to average about 4.5%. Inflation expectations had surged to 4.6% in April from 3.6 in March.

    Inflation expectations over the next five years rose to 3.2% from 3% in April. That’s the highest reading since 2011.

    Key details: A gauge that measures what consumers think about their financial situation — and the current health of the economy — fell to 64.5 from 68.2 in April.

    Another measure that asks about expectations for the next six months moved down to 53.4 in May from 60.5 in the prior month.

    Big picture: Consumer spending is the engine of the economy. If households grow concerned about the outlook and pull back, it could push the economy into recession.

    And Federal Reserve officials won’t be pleased to see expectations of inflation over the long-term increase. They view expectations as a key source of future inflation pressure.

    What UMich said: “Consumers’ worries about the economy escalated in May alongside the proliferation of negative news about the economy, including the debt crisis standoff,” the press release said. In the most serious debt-ceiling standoff in 2011 consumer sentiment plummeted to recession levels but recovered quickly when the crisis was averted.

    What are they saying? “While we don’t place too much weight on the relationship, if sustained, the latest plunge in consumer sentiment would be consistent with falling consumption in the second quarter. That would be alongside the probable hit to consumption from tightening credit conditions,” said Olivia Cross, assistant economist at Capital Economics.

    Market reaction: Stocks
    DJIA,
    -0.18%

    SPX,
    -0.22%
    were lower in volatile trading on Friday while the yield on the 10-year Treasury note
    TMUBMUSD10Y,
    3.437%
    rose to 3.41%.

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  • Dow posts 4-day decline as regional-bank woes resurface

    Dow posts 4-day decline as regional-bank woes resurface

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    U.S. stocks ended mostly lower on Thursday, with the Dow booking a fourth day in a row of losses, as selling pressures returned to shares of regional banks. The Dow Jones Industrial Average
    DJIA,
    -0.66%
    shed about 221 points, or 0.7%, ending near 33,310, according to preliminary FactSet data. The S&P 500 index
    SPX,
    -0.17%
    fell about 0.2%, while the Nasdaq Composite Index
    COMP,
    +0.18%
    closed 0.2% higher. Disappointing earnings from Disney Co.
    DIS,
    -8.73%
    tied to its streaming business helped drag down the blue-chip Dow, while shares of PacWest Bancorp
    PACW,
    -22.70%
    fell more than 20% after it disclosed a 9.5% decline in deposits in recent weeks. Short-term rates remained volatile on Thursday as investors hoped for progress on the debt-ceiling stalemate in Washington D.C. The 2-year Treasury
    TMUBMUSD02Y,
    3.891%
    was pegged at 3.906%, up four of the past five trading days, according to Dow Jones Market Data. The 6-month Treasury bill was at 5.11%.

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  • U.S. April producer prices rise 2.3% over past year, smallest increase since January 2021

    U.S. April producer prices rise 2.3% over past year, smallest increase since January 2021

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    The numbers: U.S. producer prices rose 0.2% in April, the Labor Department said Thursday.

    Economists polled by the Wall Street Journal had forecast the PPI would rise 0.3%.

    In the 12 months through April, the PPI increased 2.3%. It follows a 2.7% gain in March. This is the lowest rate since January 2021.

    Key…

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  • Biden describes debt-ceiling meeting as ‘productive,’ but McCarthy says he ‘didn’t see any new movement’

    Biden describes debt-ceiling meeting as ‘productive,’ but McCarthy says he ‘didn’t see any new movement’

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    House Speaker Kevin McCarthy on Tuesday said he “didn’t see any new movement” toward ending Washington’s standoff over the debt ceiling, as he assessed how a much-anticipated meeting on the issue went.

    President Joe Biden hosted the meeting at the White House with the country’s four top lawmakers, and beforehand analysts had predicted it would not result in a deal.

    McCarthy…

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  • Debt-ceiling deal not looking likely yet as Biden meets with McCarthy and other lawmakers

    Debt-ceiling deal not looking likely yet as Biden meets with McCarthy and other lawmakers

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    As President Joe Biden prepares to host a much-anticipated meeting on the U.S. debt ceiling with the country’s four top lawmakers, analysts are predicting there won’t be a deal yet on this issue.

    If the meeting at the White House, scheduled for around 4 p.m. Eastern time Tuesday, were to conclude with an agreement, that would be very surprising, said Chris Krueger, managing director at TD Cowen’s Washington Research Group, in a note on Tuesday.

    The…

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  • Dow, S&P 500 book 4-day losing streak as banking shares drag down stocks

    Dow, S&P 500 book 4-day losing streak as banking shares drag down stocks

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    U.S. stocks closed lower for a fourth session in a row on Thursday as pressure on shares of banking stocks continued to weigh on equities. The Dow Jones Industrial Average DJIA fell about 286 points, or 0.9%, ending near 33,127, according to preliminary FactSet figures. The S&P 500 index SPX fell 0.7% and the Nasdaq Composite Index COMP slumped 0.5%. That marked the S&P 500’s longest losing streak since since Feb. 22, according to Dow Jones Market Data, and the longest losing stretch since Dec. 19 for the Nasdaq. Pressure in the U.S. banking sector has been a key focus for investors, with shares of the SPDR S&P Regional…

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  • ECB not ready to ‘pause’ rate hikes as inflation fight continues, Lagarde says

    ECB not ready to ‘pause’ rate hikes as inflation fight continues, Lagarde says

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    The European Central Bank on Thursday lifted interest rates by 25 basis points, slowing the pace of tightening as it delivered a seventh straight increase, indicating it’s not ready to press the pause button.

    “We are not pausing,” ECB President Christine Lagarde told reporters at a news conference, adding that the stance was “very clear.”

    The increase lifted the ECB’s main rate to 3.25%, near a 15-year high.

    “The inflation outlook continues to be too high for too long,” the ECB Governing Council said in a statement at the conclusion of its policy meeting.

    “Headline inflation has declined over recent months, but underlying price pressures remain strong. At the same time, the past rate increases are being transmitted forcefully to euro area financing and monetary conditions, while the lags and strength of transmission to the real economy remain uncertain,” the ECB said.

    Lagarde told reporters that the lending survey informed the decision to lift rates by a quarter point rather than a half point. She said there was a strong consensus behind the quarter-point move, while acknowledging some policy makers had preferred a half-point hike.

    The euro
    EURUSD,
    -0.38%
    initially slumped after the statement, but rebounded sharply to trim a loss versus the U.S. dollar after Lagarde said the ECB wasn’t prepared to pause the rate-hiking cycle. The euro was down 0.2% at $1.1035 after trading as low as $1.1003. The euro has rallied 3% versus the dollar so far in 2023.

    European government bond yields were also lifted after Lagarde ruled out a pause. The yield on the 10-year German government bond
    TMBMKDE-10Y,
    2.242%    ,
    or bund, was up around a half of a basis point at 2.289%.

    The ECB move comes after the Federal Reserve on Wednesday delivered a 10th consecutive rate increase, but signaled that it was prepared to hold off on further tightening depending on incoming economic and financial data. Asked if the ECB could continue on a tightening path if the U.S. central bank paused, Lagarde dismissed the notion that ECB decisions were “dependent” on the Fed.

    Market participants, meanwhile, have priced in three Fed rate cuts by year-end. The ECB, in contrast, was expected to deliver further monetary tightening.

    Inflation in the eurozone continued to run at a 7% year-over-year clip in April, roughly in line with market expectations, but a modest acceleration from March. Core inflation, excluding food, energy, alcohol and tobacco, ticked down a tenth to 5.6% from 5.7%.

    A slowing eurozone economy, however, has bolstered arguments for bringing the monetary tightening cycle to an end, economists said. The ECB’s bank lending survey released Tuesday showed a tightening in conditions, with the largest tightening in credit standards for the last two quarters since the sovereign debt crisis.

    The ECB in March shrugged off worries about the banking sector, delivering a half-point rate hike but signaling that future decisions would be made on a meeting-by-meeting basis, abandoning a longstanding policy of “forward guidance” aimed at massaging market expectations around future rate moves.

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  • Debt-ceiling standoff: Here’s what’s next, as U.S. faces potential default on June 1

    Debt-ceiling standoff: Here’s what’s next, as U.S. faces potential default on June 1

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    A divided Washington is making a little progress toward raising the debt ceiling and avoiding a U.S. default, but the endgame still isn’t clear.

    Here’s what looks likely to come next, as a White House meeting among key players is planned for May 9 — and June 1 looms as a possible deadline.

    Biden aims for May 9 talks after Yellen’s warning

    The…

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  • Dow ends 367 points lower, stock fall ahead of Fed rate decision

    Dow ends 367 points lower, stock fall ahead of Fed rate decision

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    U.S. stocks closed lower on Tuesday, but were well off the session’s lows, a day before the Federal Reserve could be poised to fire off its last interest rate hike of this cycle. The Dow Jones Industrial Average DJIA shed about 367 points, or 1.1%, ending near 33,684, according to preliminary FactSet figures. The S&P 500 index SPX shed 1.2%, while the Nasdaq Composite Index COMP closed 1.1% lower. Regional bank stocks were hammered on Tuesday, a day after JPMorgan Chase & Co. won an auction for the assets of the failed First Republic Bank. The SPDR S&P Regional Bank ETF KRE closed down 6.4% on Tuesday. U.S. crude oil…

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  • Aussie dollar, bond yields surge after central bank’s surprise rate hike

    Aussie dollar, bond yields surge after central bank’s surprise rate hike

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    Australian government bond prices plunged and the country’s currency surged after the central bank surprised markets on Tuesday with another rate hike.

    The Reserve Bank of Australia raised its benchmark borrowing costs by 25 basis points to 3.85% after traders had expected no move.

    The RBA said inflation, which is running at an annual rate…

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