© Reuters. FILE PHOTO: A trader works on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., May 9, 2022. REUTERS/Brendan McDermid
By Amruta Khandekar and Devik Jain
(Reuters) – Wall Street’s main indexes fell in volatile trading on Tuesday dragged down by banks and some megacap growth stocks as investors fretted over prospects of aggressive monetary tightening and slowing economic growth.
Eight of the 11 major S&P sectors declined, led by a 1.3% fall in financial stocks and a 2.4% dip in real-estate shares.
After rising as much as 2.8% earlier in the session, the tech-heavy Nasdaq was flat.
Shares of Apple Inc (NASDAQ:AAPL), Google (NASDAQ:GOOGL) owner-Alphabet Inc and Microsoft Corp (NASDAQ:MSFT) rose more than 1% each, while Amazon.com (NASDAQ:AMZN) and Tesla (NASDAQ:TSLA) Inc fell 0.6% and 0.2%, respectively.
At 11:54 a.m. ET, the Dow Jones Industrial Average was down 179.59 points, or 0.56%, at 32,066.11, the S&P 500 was down 16.04 points, or 0.40%, at 3,975.20, and the Nasdaq Composite was down 4.96 points, or 0.04%, at 11,618.29.
“We all saw this rally this morning … there’s no way it was going to hold ahead of the CPI data as nobody wants to be long in case that (reading) comes in hot. So you’re going to see a lot of nervousness ahead of this number,” said Dennis Dick, a trader at Bright Trading LLC in Las Vegas.
Data on Wednesday is expected to show consumer prices increased at a slower pace in April, with investors looking for clues on peaking inflation and the path of future rate hikes.
Cleveland Fed President Loretta Mester said the U.S. economy will experience turbulence from the Federal Reserve’s efforts to bring down inflation running at more than three times above its goal and recent volatility in the stock market would not deter policymakers.
The S&P 500 index and the Nasdaq have dropped over 16% and 25%, respectively, this year due to the Ukraine conflict, China’s COVID-19 lockdowns roiling global supply chains and rising bond yields as traders adjust to higher U.S. interest rates.
“The uncertainty around the Fed and the geopolitical situation leads me to believe that people are going to end up being a little bit more cautious,” said Robert Gilliland, managing director at Concenture Wealth Management.
“The markets are trying to figure out what the world will look like in three, six and twelve months from now. I do think we’ve got to go back down before we start another leg up.”
Among other stocks, Novavax (NASDAQ:NVAX) Inc slid 6.6% after the vaccine maker revealed a sharp drop in first-quarter COVID-19 research funding and said it shipped less than a fourth of the total vaccine deliveries slated for 2022.
Peloton Interactive (NASDAQ:PTON) Inc tumbled 13.4% as the fitness equipment maker warned the business was “thinly capitalized” after it posted a 23.6% slide in quarterly revenue.
Declining issues outnumbered advancers for a 1.98-to-1 ratio on the NYSE and a 1.75-to-1 ratio on the Nasdaq.
The S&P index recorded one new 52-week high and 61 new lows, while the Nasdaq recorded 17 new highs and 939 new lows.
Australian banks enter tech arms race as rising rates squeeze profit
© Reuters. FILE PHOTO: A view of a Commonwealth Bank of Australia branch in Sydney, Australia, April 18, 2018. REUTERS/Edgar Su
By Byron Kaye
SYDNEY (Reuters) – The 10-minute home loan – at the tap of a smartphone screen – is emerging as the next frontier in Australian banking as rising interest rates quash a pandemic-fuelled property boom, eating into mortgage income and renewing focus on cost-cutting tech.
The Big Four lenders booked blockbuster profit during the COVID-19 pandemic due to a leap of nearly one-third in property prices since 2020, but raging inflation brought a shock rate hike this month and expectations of several more.
That has left banks, which make most of their profit from mortgages, looking to automate every step of the loan process and cut overheads such as staffing and real estate to keep growing profit from what analysts say may be a shrinking pool of money.
So far only Commonwealth Bank of Australia (OTC:CMWAY) (CBA), the biggest lender, has put a speed target on its automation drive. It said a fully digitised loan service that went live on Tuesday could process an application in as little as 10 minutes.
But in earnings updates this month, National Australia Bank (OTC:NABZY) Ltd (NAB), Westpac Banking (NYSE:WBK) Corp and Australia and New Zealand Banking Group Ltd (ANZ) all pointed to automation to offset the impact of a cooling property market.
“They’re incentivised to invest in tech and get up to where CBA is because it drives people online,” said Hugh Dive, chief investment officer at Atlas (NYSE:ATCO) Funds Management, which holds shares of major banks.
“They can improve profit without growing their top line.”
Citi banking analyst Brendan Sproules in a client note said chief executive officers face an “endless battle to transform their 1970s/80s process and systems into the modern digital age”.
“A rising cash rate might just provide the opportunity to accelerate this transformation along faster than we first thought.”
Instead of filling in paper forms and supplying documents, to be verified and analysed by back-office staff, a customer would enter the address of a property they planned to buy plus their bank account login. Their computer or smartphone camera would confirm their identity.
Algorithms figure out the rest, such as employment history and probable purchase price.
A bank employee only steps in if the software picks up discrepancies in the data, people who work on loan automation software said.
Some smaller and online-only lenders already automate mortgage applications but – until now – not the Big Four, which dominate Australia’s A$10 trillion ($7.00 trillion) housing market with three-quarters of loans by value.
“What we’re seeing right now is a lot of optimisation using existing processes, using existing loan origination systems,” said Hessel Verbeek, head of banking strategy at KPMG Australia.
“The room for improvement will include when people actually start to replace some of the key systems.”
Banks have not specified how much money they plan to spend automating mortgage approvals, nor how much they would save.
Of the A$3.6 billion the Big Four invested in the first half of the 2022 financial year, 35% went to “productivity and growth”, versus 32% a year earlier, showed data from KPMG.
NAB, the second-biggest lender, said last week its “investment in customer experience, efficiency and sustainable revenue” rose 46% in October-March from the same period a year earlier, to A$228 million. It said it wants every home loan automated by 2024.
ANZ, which has been losing mortgages for two years as understaffing led to a surge in approval times, said it has only begun work digitising processes.
“There’s no doubt we’ve got some catching up to do,” CEO Shayne Elliott was quoted as saying in The Australian.
Banks were slow to start automating retail products partly because large compliance and risk management overhauls sapped both investment budgets and management attention since regulatory scrutiny dramatically increased in 2018, analysts and industry participants said.
Rebecca Engel, head of Microsoft Corp (NASDAQ:MSFT)’s Australian financial services unit, said there was a “massive increase in investment, deployment, acceptance and trust in technology” by banks in tandem with heightened regulatory attention and higher transaction volume during the pandemic.
“The goal should be higher levels of assurance, higher levels of quality, at a lower cost,” Engel told Reuters.
“That is driven by technology.”
($1 = 1.4282 Australian dollars)
Wall Street ends sharply higher, fueled by Apple
© Reuters. FILE PHOTO: A Wall Street sign is pictured outside the New York Stock Exchange in New York, October 28, 2013. REUTERS/Carlo Allegri
By Amruta Khandekar and Noel Randewich
(Reuters) – Wall Street finished sharply higher on Tuesday, lifted by Apple, Tesla (NASDAQ:TSLA) and other megacap growth stocks after strong retail sales in April eased worries about slowing economic growth.
Ten of the 11 major S&P sector indexes advanced, with financials, materials and technology among the top performers.
Investors were cheered by data showing U.S. retail sales increased 0.9% in April as consumers bought motor vehicles amid an improvement in supply and frequented restaurants.
Tuesday’s broad rally followed weeks of selling on the U.S. stock market that last week saw the S&P 500 sink to its lowest level since March 2021.
“The largest pockets of stocks that investors tend to buy have been essentially beaten up. They’re either in correction or bear market territory,” said Sylvia Jablonski, chief investment officer of Defiance ETF. “I think investors are looking at these opportunities to buy on the dip, and I suspect that today is a good day to do that.”
Another set of economic data showed industrial production accelerated 1.1% last month, higher than estimates of 0.5%, and faster than a 0.9% advance in March.
“This is consistent with continued economic growth in the second quarter and not a recession underway,” said Bill Adams, chief economist for Comerica (NYSE:CMA) Bank in Dallas.
The U.S. Federal Reserve will “keep pushing” to tighten U.S. monetary policy until it is clear inflation is declining, Fed Chair Jerome Powell said at an event on Tuesday.
Traders are pricing in an 85% chance of a 50-basis point rate hike in June.
According to preliminary data, the S&P 500 gained 81.54 points, or 2.03%, to end at 4,089.55 points, while the Nasdaq Composite gained 323.23 points, or 2.77%, to 11,986.02. The Dow Jones Industrial Average rose 432.62 points, or 1.35%, to 32,659.17.
Walmart (NYSE:WMT) Inc tumbled after the retail giant cut its annual profit forecast, signaling a bigger hit to margins.
United Airlines Holdings (NASDAQ:UAL) Inc gained after the carrier lifted its current-quarter revenue forecast, boosting shares of Delta Air, American Airlines (NASDAQ:AAL) and Spirit Airlines (NYSE:SAVE).
A positive first-quarter earnings season has been overshadowed by worries about the conflict in Ukraine, soaring inflation, COVID-19 lockdowns in China and aggressive policy tightening by central banks.
The S&P 500 is down about 14% so far in 2022, and the Nasdaq is off around 24%, hit by tumbling growth stocks.
U.S.-listed Chinese stocks jumped on hopes that China will ease its crackdown on the technology sector.
Fed’s Powell vows to raise rates as high as needed to kill inflation surge
© Reuters. FILE PHOTO: Federal Reserve Chair Jerome Powell testifies before the Senate Banking Committee in Washington, U.S., March 3, 2022. Tom Williams/Pool via REUTERS
WASHINGTON (Reuters) -Federal Reserve Chair Jerome Powell on Tuesday pledged that the U.S. central bank would ratchet interest rates as high as needed to kill a surge in inflation that he said threatened the foundation of the economy.
“What we need to see is inflation coming down in a clear and convincing way and we’re going to keep pushing until we see that,” Powell said at a Wall Street Journal event. “If we don’t see that, we will have to consider moving more aggressively” to tighten financial conditions.
“Achieving price stability, restoring price stability, is an unconditional need. Something we have to do because really the economy doesn’t work for workers or for businesses or for anybody without price stability. It’s the bedrock of the economy really.”
Acknowledging the possible “pain” that controlling inflation might cause in terms of slower economic growth or higher unemployment, Powell said there were “pathways” for the pace of price hikes to ease without a full-blown recession.
But if inflation does not fall, Powell said the Fed would not flinch from raising rates until it does.
“If that involves moving past broadly understood levels of ‘neutral’ we won’t hesitate to do that,” Powell said, referring to the rate at which economic activity is neither stimulated nor constrained. “We will go until we feel we are at a place where we can say ‘yes, financial conditions are at an appropriate place, we see inflation coming down.'”
The Fed has raised its benchmark policy rate by three-quarters of a percentage point this year, and is on track to increase it again in half-percentage-point increments at its next two meetings in June and July. Market interest rates on Treasury bonds, 30-year mortgages and other forms of debt have risen much faster in a financial tightening predicated on upcoming Fed actions.
What happens next – how much more the central bank hikes rates, and how fast – depends on how the economy and inflation evolve, something Powell said the Fed would evaluate “meeting by meeting, data reading by data reading.”
His remarks solidified expectations in rate futures markets that the Fed’s target rate would reach at least 2.75% to 3.00% by the end of this year and perhaps more, steadily rising from the current range between 0.75% and 1%. CME Group’s (NASDAQ:CME) FedWatch tool on Tuesday showed a greater than one-in-four prospect for the policy rate to end the year at between 3.00% and 3.25%, up from about a one-in-10 chance on Monday.
‘UNTIL SOMETHING BREAKS’
Economists meanwhile are divided between those who feel inflation will collapse on its own and let the Fed do less, and those who feel the central bank may need to hike in increments of three-quarters of a percentage point to ever get control of inflation that reminds some of the shocks of the 1970s and early 1980s.
Data in recent weeks have been chock with conflicting signals.
Retail sales, hiring, and manufacturing output all show an economy that is itself unflinching, so far, in the face of higher borrowing costs.
“The economy is strong. Consumer balance sheets are healthy. Businesses are healthy,” Powell said, contending that strength is one reason the Fed can push interest rates higher and slow growth enough to cool inflation without causing the sort of painful contraction the central bank has used in the past to clamp down on prices.
At the same time, the war in Ukraine is making food and fuel more expensive around the world, while a new round of coronavirus lockdowns in China threatens to keep prices rising for manufactured goods and industrial inputs.
Coupled with still strong consumer demand in the United States, that could force the Fed into even tougher action.
The Fed targets an inflation rate of 2% annually, but prices using the central bank’s preferred measure are currently rising at more than three times that level. Inflation that is too fast can distort household and business planning, and, more to the point for the sense of urgency felt by Powell and his Fed colleagues, erode the ability of the central bank to keep it under control.
“Once the Fed starts hiking, they continue to hike until something breaks. Now the question becomes is what we should be looking at as a potential break? The equity market? Is it credit? Is it housing? I think that’s going to be this cycle’s big unknown,” said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets in New York.
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