US stocks slipped in morning trade on Tuesday as investors reassessed prospects for the banking sector following weeks of uncertainty over its health.
The blue-chip S&P 500 fell 0.1 per cent and the tech-heavy Nasdaq was 0.6 per cent lower.
Bank stocks were steady, with the KBW Nasdaq Bank index up 0.2 per cent, while Citigroup fell 0.1 per cent and JPMorgan was 0.2 per cent higher.
Bank stocks had risen on Monday as regulators confirmed First Citizens Bank would purchase part of the collapsed Silicon Valley Bank.
“At the moment no news is good news. People are waiting for the dust to settle and to see if there is another banking stress,” said Nadège Dufossé, global head of multi-asset at Candriam. “I expect better news flow around inflation in coming months but for now we don’t know the impact on growth. We’re not out of the woods yet and will continue to see volatility.”
In Europe the Stoxx Europe 600 Banks index, which includes the region’s biggest lenders, closed up 0.7 per cent. Commerzbank was among the biggest gainers, up 1.5 per cent. Deutsche Bank, however, was down 1.3 per cent.
The mood was reflected in broader share indices, with the region-wide benchmark Stoxx 600 flat and Germany’s Dax up 0.1 per cent. London’s FTSE was up 0.2 per cent.
In currency markets, the dollar index, which measures the greenback against a basket of six peer currencies, fell 0.4 per cent. The US currency has fallen 3 per cent in the past two weeks as investors’ expectations that the Federal Reserve would raise interest rates have receded.
Investors and economists are now weighing the impact of the banking crisis on growth and the likelihood and severity of a recession. According to analysts at UBS, the Fed’s downgrade of its 2023 growth forecast “suggests that either the banking stress is worse than investors currently know (the Fed gets bank data before the market) or the Fed is being conservative with its growth assumptions because the credit tightening impact is highly uncertain. For investors, the safest conclusion is that the risk of a recession has gone up.”
In Asia, the Hang Seng index closed up 1.1 per cent after Monday data showed that Chinese industrial profits declined 22.9 per cent year on year.
Government debt weakened, with yields on two-year US Treasuries rising 0.06 percentage points to more than 4 per cent, while 10-year notes rose 0.02 per cent to 3.55 per cent.
Brent crude rose 1 per cent to $78.85 a barrel, while WTI, the US equivalent, was up 0.9 per cent at $73.50 a barrel.