Stock markets rally as bank turmoil fades

March 15, 2023 (MLN): US and European stock markets rebounded on Tuesday, as concerns over the turmoil in the banking industry eased.

The recovery came after the collapse of two US regional lenders, which had initially sparked fears of contagion across the sector. However, emergency measures launched by authorities seem to have helped mitigate the risks.

Shares of banks, including First Republic Bank and other regional banks, made significant gains, lending support to major US indices. The S&P 500, for instance, rose by 1.7%. Meanwhile, European markets in London, Paris, and Frankfurt all advanced at least one percent.

Investors also digested US data that showed the consumer price index rose six % from a year ago, in line with expectations, but well above the policymakers' longer-term two % inflation goal.

Federal Reserve Chair Jerome Powell initially said the central bank is prepared to increase the pace of rate hikes if necessary, but the recent bank collapses may complicate its efforts.

According to analysts at Goldman Sachs and Wells Fargo, the Fed will end its hiking cycle on March 22, while economists at JP Morgan and Oxford Economics see Fed policymakers voting for a quarter-point hike.

However, taken together, the readings are "not good enough to stop the Fed hiking next week, provided markets are calm," said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

In other markets, oil prices fell sharply, with the US benchmark contract West Texas Intermediate dropping nearly five % to $71.33 a barrel. The collapse of the two regional banks had heightened concerns about the economy, reducing investor confidence and oil demand, according to John Kilduff of Again Capital.

Meanwhile, Facebook parent Meta Platforms announced it will shed 10,000 jobs in the coming months and leave 5,000 other roles unfilled. The news sent its stock jumping by 7.3%.

Overall, the news is a mixed bag for investors, as they weigh the impact of the bank collapses and inflationary pressures against positive developments in the banking sector and the tech industry.

Copyright Mettis Link News