Equity markets were broadly lower before the FOMC announcement as recession fear surfaced again, with the worry about the banking sector mounting on investors’ sentiment.
It does not help that the labour market data also showed a continuous softening. Taking this into account with the monetary tightening policy and banking crisis, it is time to take some chips off the table before the FOMC meeting.
Indeed, major indices felt the pressure as Dow shed 1.6%. S&P 500 also retreated by 1.7%, while Nasdaq gave up 1.5%.
Regional banks fell hard.
Shares of major regional banks tumbled as traders felt uneasy about their future growth. Many were puzzled by the sudden pullback, but one could point to the impending rate hike today, which could further destress the value of the treasury held by the regional bank.
There were some disappointments among investors due to the inaction of Congress and bank regulators to protect these mid-sized banks from the higher insurance cost on deposits.
There is little doubt that such costs will have to go up given FDIC’s large losses from the recent bank failures. We continued to monitor our positions in PacWest as their balance sheet remained sound, although things could deteriorate given the uncertain mood of investors.
Job openings saw a further decline.
It came in lower than expected as the labour market showed a cooling sign. It is the lowest level since 2021. This is good news for the Fed as they hope for a softer labour market to tame demand and, in turn, push inflation downward.
Nonetheless, a poorer labour market instils new fear of a recession, aggravating the current nervous situation. Economists are now expecting the unemployment to rise to 3.6% in April.
What’s on the menu today?
There is a string of economic data. Here’s the breakdown:
a) 8.15 pm: ADP Nonfarm Employment
b) 9.45 pm: Services PMI
c) 10 pm: ISM Non-Manufacturing PMI
d) 2 am: FOMC Interest Rate decisions and FOMC statement
It will be a heavy-packed day as we expect a large swing of movement when economic data are released before the FOMC outcome. We are generally still in net long positions as we took off our short hedge position in VIX. Still, it was a tomato day for us, and we hope for a better showing after FOMC.
It is 3 May, Wednesday, 9 am in Singapore and 9 pm in New York. A brand new trading month begins. We hope you have a delightful stroll to work.
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All is well.