The resurgence of US regional banks shares has boosted the stock market. Wall Street rallied on Friday, powered by shares of regional US banks. At the same time, government bond prices fell as investors worried the Federal Reserve would keep interest rates high for longer despite solid jobs statistics.
After plunging significantly on increased concerns about the sector’s health the previous day, PacWest and Western Alliance shares surged 83% and 38%, respectively, in New York.
The S&P 500 index rebounded 1.4% on Friday from Thursday’s sell-off. After Apple reported a first-quarter revenue and less-than-expected profit decline, the tech-heavy Nasdaq Composite rose 1.8%, with Apple’s stock rising 4.8%. The KBW regional banking index rose 4.6%, recovering from the previous session’s losses.
Read more: Stock in First Horizon falls after a failed merger with TD Bank.
Month-to-month data showed the US economy added 253,000 jobs in April, significantly exceeding the 180,000 predicted by economists polled by Reuters. This came as bank stocks stabilized. The unemployment rate hit a 50-year low of 3.5% and has now dropped to 3.4%. The 3.6% growth forecast by economists was lower than actual.
There has been speculation among investors that the Fed would not begin cutting interest rates as soon as was expected since they are studying the figures for signals that the US economy is faltering.
Substantial numbers would amplify fears that “the US economy is likely still too hot in the eyes of the Federal Reserve,” according to Richard Flynn, managing director at Charles Schwab UK.
The yield on two-year Treasuries, which are particularly sensitive to interest rate changes, jumped 0.21 percentage points to 3.93 percent as US government securities sold off sharply.
The FTSE 100 in London added 1%, while the Stoxx Europe 600 rose 1.1% across the continent. The value of one pound in dollars rose to $1.265, up 0.6% from its previous peak in May of last year.
Despite data showing a larger-than-expected loss of 10.7 percentage points in German manufacturing orders in March, the Dax index managed to rise 1.4 percentage points, helped by an 8.9 percentage point increase for sportswear manufacturer Adidas. That caused others to worry that Europe’s largest economy was experiencing a steep decline.
With inflation still a problem, the European Central Bank hiked interest rates by a quarter of a percentage point on Thursday, a more gradual increase than in recent months. The European Central Bank has completed its fastest-ever tightening cycle, increasing its primary deposit rate from negative 0.5% to 3.25% in just 11 months.
According to some experts, current interest rates are incredibly high. “For all the resilience of the euro area banking sector, the US experience is calling for caution,” Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management, said. “We anticipate the ECB will halt rate hikes by the summer.”
The price of a barrel of crude oil increased by 3.6% to $75.08 on the commodity markets, while the price of a barrel of West Texas Intermediate (WTI) crude oil in the United States increased by 3.8% to $71.13.
