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US regional bank rally loses steam as investors await Fed data

US regional banks rallied further in pre-market trading on Monday as concerns over their health eased, with the momentum also underpinning gains for stocks in Europe and Asia.

Futures tracking the US S&P 500 were trading 0.2 per cent higher while those following the Nasdaq were flat as investors grew more optimistic over the battered sector.

The pan-European Stoxx 600 rose 0.4 per cent, led by energy and financial stocks, despite lingering worries that global interest rates would remain high to combat inflation.

Shares in PacWest Bancorp, which soared 82 per cent on Friday, added 37 per cent in pre-market trading on Monday after it said over the weekend that it would cut its quarterly dividend. Western Alliance was 10.3 per cent higher while the SPDR S&P Bank ETF rose 5.5 per cent.

The gains came after a rebound at the end of last week for US banking stocks, which had earlier been buffeted by concerns over the collapse of lender First Republic. The KBW Regional Banking index rose 4.7 per cent on Friday, while the broader S&P 500 gained 1.9 per cent and the tech-focused Nasdaq Composite climbed 2.3 per cent.

Germany’s Dax was up 0.2 per cent after a sharper than expected fall in German industrial production, which prompted economists to warn that Europe’s largest economy was likely to slide into a recession. London was closed for a public holiday.

Hong Kong’s benchmark Hang Seng index rose 0.8 per cent, while China’s CSI 300 climbed 1 per cent. Japan’s Topix broke ranks with the rest of the region, falling 0.3 per cent.

But analysts were pessimistic that markets in Asia would push higher without improving economic data from China or signs that the US Federal Reserve might begin cutting interest rates.

Economic data last week indicated that the US economy was still creating more jobs than expected and that hourly wages were rising. Fed chair Jay Powell also stressed it would take time for inflation to return to the central bank’s 2 per cent target and dismissed hopes that interest rate cuts could be on the horizon.

“Overall market sentiment has stabilised, but I don’t really think [the market] can break through the wait-and-see, up-and-down pattern we’ve been seeing,” said Dickie Wong, head of research at Kingston Securities. “Even the Wall Street gains on Friday were mainly driven by regional banks, so obviously I don’t see much upside in the near term.”

Sterling rose 0.3 per cent to its highest point since April 2022 against the dollar as investors looked ahead to the latest Bank of England monetary policy meeting this week.

Traders expect the central bank to raise its main benchmark interest rate by 0.25 percentage points to 4.5 per cent as headline inflation has persisted since its last meeting.

Brent crude, the international oil benchmark, rose 1.4 per cent to $76.39 a barrel, while West Texas Intermediate, the US marker, was up 1.6 per cent at $72.48.

In government bond markets, yields fell slightly as bond prices inched higher following a sell-off on Friday, with the yield on two-year US Treasuries up 0.04 percentage points to 3.97 per cent.

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