Stock markets nervous about Fed pivot and banking sector

Global stock markets sagged while the Japanese yen rose on Thursday in reaction to the Fed’s policy statement and signs of stress at another U.S. regional bank, spurring investors to price in a pivot rather than just a pause in rate rises.

Another U.S. regional bank, PacWest Bancorp (PACW.O), reported troubles overnight, reminding investors of the precarious health of some banks despite regulators’ assurances around containing the crisis that started with the collapse of Silicon Valley Bank and Signature Bank in March.

The Federal Reserve raised interest rates by a quarter of a percentage point and signaled it may pause further increases, giving officials time to assess the fallout from the bank failures, wait on a political resolution to the U.S. debt ceiling, and monitor inflation.

While investors initially cheered the possibility of a pause, their confidence waned as Chair Jerome Powell spoke, clarifying inflation remains the chief concern and that it is too soon to say with certainty that the rate-hike cycle is over.

“The Fed decision was widely expected, so it didn’t provide much of a shock to financial markets,” Tina Teng, market analyst at CMC Markets, in Auckland.

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