ASX to open higher as banks lead stock market rally

“Inflation has met expectations but is still uncomfortably hot. Financial burdens are intense. Caution would dictate a pause for them, but couple it with a stern warning that if inflation trends don’t improve, they may have to keep climbing.”

He said the Fed has other tools at its disposal besides rate hikes. Among them: The Fed could adjust the rate at which it shrinks its vast stash of bond investments, a move that effectively tightens the screws on the financial system.

A looser Fed could give the banking system and the economy more breathing room, but also give inflation more oxygen.

Traders rushed to place some bets on Monday that the Fed might decide to hold rates steady at its next meeting, rather than accelerate to a 0.50 percentage point hike as they thought a week ago. Following the inflation data, bets are largely falling on it remaining on a 0.25-point rise later this month, according to CME Group data.

“From there, something like this should give the Fed pause on how much tightening is already in the system and has yet to show, particularly as the jobs and inflation data cools,” said Ross Mayfield, investment strategist at Baird.

“Markets have been trying to gauge what a Fed pivot feels like since last June and got it wrong every time,” he added. “This feels like an event that could actually pivot the Fed.”

Shares across the financial industry rose on Tuesday, recouping some of their sharp earlier falls. First Republic Bank rose 27 percent after falling 67.5 percent in the previous three days. KeyCorp was up 6.9 percent, Zions Bancorp was up 4.5 percent and Charles Schwab was up 9.2 percent.

Among other big Wall Street climbers, Facebook’s parent company rose 7.3 percent after saying it expects spending this year to be lower than earlier forecasts. Meta Platforms is cutting staff and cutting jobs to contain costs.

All told, the S&P 500 rose 64.80 points to 3,920.56, ending a three-day losing streak. The Dow rose 336.26 points to 32,155.40 and the Nasdaq rose 239.31 points to 11,428.15.

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The US government late Sunday announced a plan to boost confidence in the banking system after the collapse of Silicon Valley Bank on Friday and Signature Bank on Sunday. Banks are struggling as higher interest rates eat away at the value of their investments while grappling with worries that shy customers will try to withdraw their money en masse to fuel a rush.

Some of the wildest action took place in the bond market, where the yield on the two-year Treasury fell about half a percent on Monday. This is a move of historic magnitude for the bond market. Yields fell as investors rushed into safe-haven assets and scaled back expectations of future Fed rate hikes.

The two-year yield climbed back to 4.21 percent from 4.02 percent late Monday, another big move.

The 10-year yield jumped from 3.55 percent to 3.66 percent. It helps set interest rates on mortgages and other major loans.

The European markets also recovered after a broad retreat in Asia.

AP

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