Wall Street’s main indexes fell on Thursday after the European Central Bank (ECB) raised its key policy rate despite fears of a global banking crisis, fueling concerns that the Federal Reserve could also tighten monetary policy for longer.
The European Central Bank pushed through a 50 basis point rate hike on Thursday, sticking to its inflation fight despite turmoil in financial markets sparked by the collapse of Silicon Valley Bank and Signature Bank (SBNY.O).
“You could read a few things into the ECB decision. One is that the fears over the banking sector are not shared by the ECB. The other is that they see the risks of elevated, embedded inflation as too great to not deal with,” said Neil Birrell, Chief Investment Officer at Premier Miton Investors.
“It’s interesting that there is not much guidance forthcoming – being led by data in policy decisions can probably also mean being very aware of financial stress and markets.”
Meanwhile, shares of First Republic Bank (FRC.N) fell 29.8% after a Bloomberg News report said the regional lender was exploring a sale, among other options.
Peers Western Alliance Bancorp (WAL.N) and PacWest Bancorp (PACW.O) also fell 13.1% and 14.6% respectively.
The KBW regional banking index .KRX slid 1.6% while the S&P 500 banking index (.SPXBK) dropped 1.2%.
U.S. big banks such as JPMorgan Chase & Co (JPM.N), Citigroup (C.N) and Bank of America Corp (BAC.N) were also down between 0.3% and 1.0%.
U.S.-listed shares of Credit Suisse, however, rose 0.5% after the bank secured a credit line of up to $54 billion from the Swiss National Bank to shore up liquidity and investor confidence.
Data showed the number of Americans filing new claims for unemployment benefits fell more than expected last week, pointing to continued labour market strength, which could persuade the Fed to keep raising rates further.
Weak retail sales figures as well as data showing a downward trend in producer inflation on Wednesday had bolstered bets of a small rate hike by the Federal Reserve at its meet concluding on March 22.
Money markets are still largely pricing in a 25-basis-point rate hike by the Fed in March. .
At 9:45 a.m. ET, the Dow Jones Industrial Average (.DJI) was down 175.89 points, or 0.55%, at 31,698.68, the S&P 500 (.SPX) was down 12.24 points, or 0.31%, at 3,879.69, and the Nasdaq Composite (.IXIC) was down 20.45 points, or 0.18%, at 11,413.60.
Shares of Adobe Inc (ADBE.O) rose 3.8% after the Photoshop maker raised its 2023 profit target.
Facebook parent Meta Platforms (META.O) and Snapchat operator Snap Inc (SNAP.N) rose 1.4% and 6%, respectively, after the Joe Biden administration threatened to impose a ban on TikTok.
Virgin Orbit (VORB.O) plunged 42.5% after the satellite launch company said it would pause all operations from March 16, and was conducting discussions with potential funding sources.
Declining issues outnumbered advancers by a 2.45-to-1 ratio on the NYSE and by a 1.99-to-1 ratio on the Nasdaq.
The S&P index recorded 1 new 52-week highs and 13 new lows, while the Nasdaq recorded 10 new highs and 107 new lows.
