Stocks mixed after more interest rate hikes

Wall Street rose but European stock markets fell Thursday after the Bank of England and other central banks joined the US Federal Reserve in hiking rates despite turmoil in the banking sector.

The Fed’s quarter-point move, one week after the European Central Bank’s hefty half-point increase, was followed Thursday by similar hikes in Britain and Norway.

Switzerland’s central bank went with a bigger, half-percentage-point increase as it declared that authorities had “put a halt to the crisis” at Credit Suisse after they engineered the embattled bank’s buyout by domestic rival UBS.

“The Fed Reserve, along with the major central banks, is clear in its position that the recent turmoil does not pose a risk to the wider financial system,” said Richard Flax, chief investment officer at wealth manager Moneyfarm.

The central banks appear “confident in the higher capital and liquidity standards in place today when compared with the Global Financial Crisis” of 2008, he added.

Markets had rallied earlier this week after authorities moved to prevent contagion from the collapse of three US regional banks this month.

Wall Street opened higher on Thursday after falling the day before following comments by the Fed and Treasury chiefs.

Fed chief Jerome Powell warned the banking sector crisis was likely to bring “tighter credit conditions for households and businesses” that would affect “economic outcomes”.

He also said there needed to be more supervision and regulation of banks to prevent another crisis.

The Fed, however, signalled that it could soon pause its rate hike campaign as its accompanying statement replaced a previous warning about the need for “ongoing increases” with a conditional one saying “some additional policy firming may be appropriate”.

Europe’s major stock markets slid Thursday after a mixed session in Asia.

“Everyone is feeling a little bit edgy – and the shift in tone from the Fed to ‘some policy firming may be appropriate’ from the previous line of ‘ongoing hikes’ has just led to more uncertainty,” said AJ Bell investment director Russ Mould.

There was also “concern the Fed sees further vulnerabilities in the financial system which are still to be tested”, he added.

Market jitters remain over rising interest rates because they are widely regarded as a catalyst behind the collapse of Silicon Valley Bank (SVB).

Policymakers had faced calls to slow or pause aggressive hiking campaigns following the sector’s biggest failures since the 2008 financial crisis.

- Further vulnerabilities? -

“Before the collapse of SVB, signs the Federal Reserve was nearing the end of its rate-hiking cycle would have been cause for the market to put on its party hat and set off some fireworks,” Mould said.

“Now everyone is feeling a little bit edgy and the shift in tone from the Fed… has just led to more concern the Fed sees further vulnerabilities in the financial system which are still to be tested.”

Nerves were also jangled after US Treasury Secretary Janet Yellen declared Wednesday that authorities were not looking at a blanket increase in deposit insurance for banks.

“Yellen’s comments seem to have reignited worries about the US banking system which we thought had been put to bed,” IG analyst Chris Beauchamp told AFP.

“In hindsight this will seem like a major error,” he cautioned.