Economy
US bank shares drop as Fed policymaker plays down rate-cut expectations
© Reuters. FILE PHOTO: A screen displays the Dow Jones Industrial Average after the closing bell on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., December 13, 2023. REUTERS/Brendan McDermid/File Photo
By Manya Saini
(Reuters) -U.S. bank stocks shed premarket gains on Friday after a U.S. Federal Reserve policymaker crushed surging market expectations of interest-rate cuts saying it was just “premature” to consider lowering borrowing costs.
“We aren’t really talking about rate cuts right now,” New York Federal Reserve President John Williams said in an interview with CNBC. “I just think it’s just premature to be even thinking about that.”
Expectations that a rate cut in early 2024 would help loan growth and lower deposit costs had powered gains in large and regional bank shares in the previous session.
Shares in the banking sector had returned to their highest level since early March on Thursday when three mid-sized lenders collapsed due to liquidity crunch partly caused by the Fed’s historic policy tightening campaign.
The KBW Regional Banking Index, which closed 4.15% higher in the previous session, dipped 0.8% in early trading, while the Banks Index, slipped 0.4%.
Among individual stocks, Regions Financial (NYSE:), Keycorp, Citizens Financial (NYSE:) and Truist Financial (NYSE:) dropped between 0.5% and 1.8%.
Shares of JPMorgan Chase (NYSE:), Bank of America, Wells Fargo, Citigroup, Goldman Sachs and Morgan Stanley were down 0.8%.
Still, Wall Street analysts pinned their hopes on the Fed’s dovish stance in its latest meeting to remain optimistic about the sector going into 2024.
“With interest rates potentially moving lower in 2024, the tailwinds of stable to lower funding cost, borrower alleviation, and improving capital levels should be enough to get investors back,” said analysts at brokerage Truist Securities.
Though higher borrowing costs boost interest income for the big lenders, a broad recovery in investor sentiment and lower rates are expected to help dealmaking power profit at their investment banking units.
“Lower rates also alleviate capital pressure for regional banks given collapsing unrealized losses on bond books,” BofA Securities analysts wrote in an industry note on Thursday.
The index tracking a basket of large-cap bank stocks has surged nearly 21% so far in the quarter and 6.54% this year.
© 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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