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Monday, March 20, 2023

Wall Street finds its footing even as worry about regional banks continues.

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Energy stocks were also under pressure, following a swift slide in the price of oil on Wednesday, which is sensitive to the prospect of a global downturn sapping demand for the commodity. Exxon Mobil and Halliburton both dropped more than 1.5 percent on Thursday. The price of a barrel of West Texas Intermediate crude oil, the American benchmark, fluctuated around its lowest level since the end of 2021.

However, broader markets appeared more settled, largely shrugging off a 0.5 percentage point rate increase from the European Central Bank, and taking solace from a rebound in the share price of Credit Suisse, the embattled European bank, after it said it would tap a lifeline from the Swiss central bank and borrow up to $54 billion.

Shares of Credit Suisse jumped more than 15 percent, recovering some of the steep loss from the day before that stoked fear about the lender’s financial health. Other banks in the region, continued to drop, however: Deutsche Bank fell 5 percent, Société Générale dipped 1.4 percent and BNP Paribas nudged 0.4 percent lower.

The European Central Bank stuck to its plans and raised interest rates by half a percentage point despite expectations the central bank might flinch in the face of sustained pressure on banks on both sides of the Atlantic.

Central banks have been raising interest rates to try to rein in inflation, but higher rates also mean higher costs for companies, contributing to the pain experienced by some banks in recent days.

Central bankers must now balance the desire to continue slowing inflation with the potential for it to risk further instability in financial markets. Analysts noted that the European Central Bank’s decision took on heightened importance ahead of the Federal Reserve’s meeting next week, and yields on some U.S. government bonds rose, as investors bet that the Fed would follow the E.C.B. in raising its benchmark rate next week.

Still, traders in futures markets continued to bet that the Fed will cut interest rates later this year as inflation continues to fall and the economy continues to deteriorate, even though the central bank and its chair, Jerome H. Powell, have so far said that there are no plans to do so.

“The balance of risks has undoubtedly shifted,” noted Daleep Singh, chief global economist at PGIM Fixed Income. “The risks from too much tightening are now at least equal to, and likely larger than, the risks of doing too little. We expect Fed Chair Powell to pair a final rate hike next week with a message that Fed policy will then go on an extended pause, with the possibility of resuming rate hikes later — or initiating rate cuts — in the second half of the year.”

Jin Yu Young and Vivek Shankar contributed reporting.

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