FTSE 100 weak, US futures lower on banking jitters; ECB rate call awaited

© Reuters. FTSE 100 weak, US futures lower on banking jitters; ECB rate call awaited

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Wall Street worried

US stocks indexes were seen starting cautiously again a day after the Federal Reserve raised rates by another 25 basis points, and failed to allay fears that further hikes may be necessary, while contagion fears hit the regional bank sector once more.

Futures for the blue-chip Dow Jones Industrial Average (DJIA) and the broader S&P 500 index were both 0.3% lower, although those for the tech-laden Nasdaq-100 were flat.

Stocks closed lower on Wednesday, with the DJIA shedding 270 points, or 0.8% to 33,414, while the S&P 500 dropped 0.7%, and the Nasdaq Composite shed 0.5%.

TickMill Group’s Market Analyst Patrick Munnelly commented: "As widely expected the US Federal Reserve raised interest rates by 25bps at their meeting last night. In his press conference, the Fed Chief, Powell was reticent about the notion of any Fed rate cuts into the back end of the year, Powell’s rhetoric during the press conference certainly hinted towards a pause in rate rises with the standard caveat of ‘data dependency’.

"Powell went to great lengths to assuage concerns regarding the regional banking sector in the US, however, post the press conference markets took a dive on news that PacWest Bancorp is set to consider strategic options and/or an asset sale."

Shares of PacWest dropped by more than 35% in premarket trading on Thursday and other regional bank shares also sold off, with Western Alliance tumbling 18% and Zions Bancorporation (NASDAQ:ZION) dropping about 7%.

Investors were also cautious ahead of key economic reports that will inform the Fed’s next rate moves, with the latest initial weekly jobless claims due today ahead of Friday’s main event, April’s non-farm payrolls report, which economists predict will rise by around 180,000.

On the corporate front, drugs firm Moderna (NASDAQ:MRNA) will issue results before the opening bell, while tech giant Apple (NASDAQ:AAPL) is set post earnings after the market close, along with Lyft (NASDAQ:LYFT), DraftKings and Coinbase (NASDAQ:COIN).

First Horizon tumbles as TD Bank deal called off

Another US bank heading south is First Horizon.

Shares have fallen nearly 40% in pre-market trading after Canadian lender Toronto-Dominion Bank called off its deal to acquire the bank, for US$13.4bn.

TD and First Horizon mutually decided to end the deal because there was no clarity on when they would get regulatory approvals, the two banks said in a statement.

As part of the termination, TD will pay US$200mln to First Horizon in addition to a US$25mln fee reimbursement, the banks said.

The deal, which would have been TD's biggest, had faced months of regulatory uncertainty and recently came under pressure from TD's investors after the US regional banking crisis.

US rate path now seen diverging from Europe and the UK

Simon French chief economist at Panmure Gordon has highlighted an interesting spread is now emerging between the US and Europe and their respective interest rate paths.

He notes markets are seeing 80 basis points of rate cuts by the Fed into the year-end reflecting banking worries and an exhausted consumer whilst ECB and the Bank of England are seen as hiking a further 60-70 basis points.

He thought it was difficult to remember such a divergence playing out although he added second quarter data will generate some big moves in these probabilities.

The dollar sold off following the announcement of yesterday’s rate increase by the Federal Reserve as the US central bank hinted it could be the last hike in the cycle.

The ECB will release its interest rate decision today while the Bank of England’s next monetary policy call will be made next week.

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