US stocks slipped on Wednesday after a fresh batch of bank earnings disappointed investors, pushing fears of a potential recession to the fore.
Wall Street’s benchmark S&P 500 slipped 0.4 per cent shortly after the New York open, with basic materials, consumer cyclicals and technology stocks among the worst performers. The tech-heavy Nasdaq Composite, which is up 15 per cent year to date, lost 0.5 per cent, while the KBW Nasdaq Bank index slipped 0.3 per cent.
Europe’s region-wide Stoxx 600 fell 0.2 per cent while Germany’s Dax was steady.
Sentiment in the US was hit after Morgan Stanley’s first-quarter results showed a drop in earnings due to a slowdown in dealmaking, sending its shares 1.5 per cent lower in early trading. Citizens Financial Group lost 1.5 pre cent after a 5 per cent fall in deposits in the first three months of the year. Tesla is due to report its earnings later in the day. Those moves came after Goldman Sachs on Tuesday said its first-quarter profits slumped 18 per cent.
US equity markets have ticked higher so far this year despite the failure of three midsized lenders in March, though some doubt how much higher stocks have left to rise.
“Despite the moves over the past month, it is almost unanimous among client conversations that they remain bearish,” said analysts at JPMorgan. Bank of America’s latest fund managers’ survey meanwhile showed that fear of a credit crunch means investments in equities relative to bonds have fallen to their lowest level since the great financial crisis.
Elsewhere, London’s FTSE 100 lost 0.2 per cent after annual UK consumer price growth last month eased by less than expected to 10.1 per cent, down from 10.4 per cent in February. Economists had expected a decline to 9.8 per cent.
Core inflation was unchanged at 6.2 per cent but was kept high by further sharp prices for food, recreation and culture. The pound briefly climbed before giving up its early gains to trade 0.1 per cent lower against the dollar to $1.241.
Paul Dales, chief UK economist at Capital Economics, said the March figures meant “it’s become even more likely” the Bank of England would raise interest rates to 4.5 per cent in May. “This release even makes us wonder if that won’t be the peak.”
UK government bonds sold off on Wednesday morning, with yields on two-year gilts up 0.13 percentage points to 3.81 per cent — the highest level since late February. Futures markets now expect UK interest rates to peak at 5 per cent in November, having priced in a peak of 4.78 per cent in September before March’s inflation data.
“It’s now clear the UK has an inflation problem that is worse and more persistent than in Europe and the US”, said Ed Monk, associate director at investment management company Fidelity International.
US government debt sold off, with the yield on two-year Treasuries up 0.05 percentage points to 4.25 per cent, its highest level in a month, and the yield on 10-year debt up 0.04 percentage points to 3.61 per cent.
Asian stocks retreated, with Hong Kong’s Hang Seng index down 1.4 per cent and China’s CSI 300 index losing 0.9 per cent, down from its highest level since early February.
