Economy
Bank stocks rally to pre-crisis levels after Fed meeting
© Reuters. FILE PHOTO: A trader works, as a screen displays a news conference by Federal Reserve Board Chairman Jerome Powell following the Fed rate announcement, on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., December 13, 2023. REUTERS/
By Sinéad Carew
(Reuters) – Shares in U.S. banks were rallying strongly on Thursday after the Federal Reserve signaled potential interest rate cuts in 2024 with the sector returning to its highest level since early March just before a crisis that put some banks out of business.
Wells Fargo and BofA Global Research analysts raised price targets across the banking sector in wake of the Fed’s dovish pivot on Wednesday
The bank index, up 4.4% and climbing sharply for a second session in a row, hit its highest level since March 6. This as the KBW Regional Banking index was also rising more than 4%.
The Fed left interest rates unchanged after its meeting on Wednesday and its Chair Jerome Powell said the central bank’s monetary policy tightening was likely over with inflation falling faster than expected and that talk of rate cuts was coming into view.”
While higher interest rates boost lenders’ profits to an extent they can also result in weakening of loan demand and pressure for banks to raise deposit rates they pay customers.
In March three medium-sized banks collapsed under pressure from rising interest rates and as customers moved their deposits to seek stability as well as higher returns.
On Thursday some of the biggest percentage gainers in the S&P 500 bank index were regional banks Zions Bancorp up 10.0%, Regions Financial (NYSE:) up 9.0% and Citizens Financial (NYSE:), adding 8.8%.
Bigger banks were rising also but at a slower pace with JPMorgan Chase (NYSE:) up 2.1%, Citigroup up 3.8%, and Wells Fargo adding 5.1%.
BofA Global Research analyst Ebrahim Poonawala said in a research note issued early on Thursday that the KBW Bank index was still trading at a 50% discount to the S&P 500 even after outperforming the benchmark since its October lows. The KBW index was last up 5.4% on the day.
While investors had already been revisiting their exposure to banks in recent weeks, according to Poonawala, the move in interest rates “on the back of Fed messaging has the potential to drive further FOMO (fear of missing out).”
Rick Meckler, partner at Cherry Lane Investments, a family investment office in New Vernon, New Jersey, pointed to the potential economic boost from rate cuts with a strong economy as “a key to bank profitability.”
Rallying stock and bond markets will also boost large banks segments including wealth management, capital markets and credit according to Meckler, who also noted that banks are among underperforming sectors “playing catch-up” in the market.
© Reuters. Russian Central Bank Governor Elvira Nabiullina attends a news conference in Moscow, Russia June 14, 2019. REUTERS/Shamil Zhumatov/File Photo
MOSCOW (Reuters) – Russia’s central bank will need two to three months to make sure that inflation is steadily declining before taking any decision on interest rate cuts, the bank’s governor Elvira Nabiullina told RBC media on Sunday.
The central bank raised its key interest rate by 100 basis points to 16% earlier in December, hiking for the fifth consecutive meeting in response to stubborn inflation, and suggested that its tightening cycle was nearly over.
Nabiullina said it was not yet clear when exactly the regulator would start cutting rates, however.
“We really need to make sure that inflation is steadily decreasing, that these are not one-off factors that can affect the rate of price growth in a particular month,” she said.
Nabiullina said the bank was taking into account a wide range of indicators but primarily those that “characterize the stability of inflation”.
“This will take two or three months or more – it depends on how much the wide range of indicators that characterize sustainable inflation declines,” she said.
The bank will next convene to set its benchmark rate on Feb. 16.
The governor also said the bank should have started monetary policy tightening earlier than in July, when it embarked on the rate-hiking cycle.
© Reuters. FILE PHOTO: Workers walk past an under-construction area with completed office towers in the background, in Shenzhen’s Qianhai new district, Guangdong province, China August 25, 2023. REUTERS/David Kirton/File Photo
SHANGHAI (Reuters) – China’s top planning body said on Saturday it had identified a second batch of public investment projects, including flood control and disaster relief programmes, under a bond issuance and investment plan announced in October to boost the economy.
With the latest tranche, China has now earmarked more than 800 billion yuan of its 1 trillion yuan ($140 billion) in additional government bond issuance in the fourth quarter, as it focuses on fiscal steps to shore up the flagging economy.
The National Development and Reform Commission (NDRC) said in a statement on Saturday it had identified 9,600 projects with planned investment of more than 560 billion yuan.
China’s economy, the world’s second largest, is struggling to regain its footing post-COVID-19 as policymakers grapple with tepid consumer demand, weak exports, falling foreign investment and a deepening real estate crisis.
The 1 trillion yuan in additional bond issuance will widen China’s 2023 budget deficit ratio to around 3.8 percent from 3 percent, the state-run Xinhua news agency has said.
“Construction of the projects will improve China’s flood control system, emergency response mechanism and disaster relief capabilities, and better protect people’s lives and property, so it is very significant,” the NDRC said.
The agency said it will coordinate with other government bodies to make sure that funds are allocated speedily for investment and that high standards of quality are maintained in project construction.
($1 = 7.1315 renminbi)
© Reuters. Russian Central Bank Governor Elvira Nabiullina attends a news conference in Moscow, Russia June 14, 2019. REUTERS/Shamil Zhumatov/File Photo
MOSCOW (Reuters) – Russia’s central bank will need two to three months to make sure that inflation is steadily declining before taking any decision on interest rate cuts, the bank’s governor Elvira Nabiullina told RBC media on Sunday.
The central bank raised its key interest rate by 100 basis points to 16% earlier in December, hiking for the fifth consecutive meeting in response to stubborn inflation, and suggested that its tightening cycle was nearly over.
Nabiullina said it was not yet clear when exactly the regulator would start cutting rates, however.
“We really need to make sure that inflation is steadily decreasing, that these are not one-off factors that can affect the rate of price growth in a particular month,” she said.
Nabiullina said the bank was taking into account a wide range of indicators but primarily those that “characterize the stability of inflation”.
“This will take two or three months or more – it depends on how much the wide range of indicators that characterize sustainable inflation declines,” she said.
The bank will next convene to set its benchmark rate on Feb. 16.
The governor also said the bank should have started monetary policy tightening earlier than in July, when it embarked on the rate-hiking cycle.
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