WALL Street stocks ended lower yesterday as markets digested the takeover of the embattled First Republic Bank, while awaiting a key Federal Reserve policy decision this week.

US financial authorities announced the seizure of First Republic yesterday and that it had been sold to JPMorgan Chase, making it the second biggest bank by assets to collapse in US history.

The regional lender’s stock price had nosedived last week after it disclosed that it lost more than US$100 billion (RM445 billion) in deposits during the first quarter.

After a choppy session, all three major US indices finished in the red at the start of a news-jammed week that also includes Apple results and a report on April’s employment figures.

The Dow Jones Industrial Average and tech-heavy Nasdaq Composite Index both slipped by 0.1%, while the broad-based S&P 500 dipped by less than 0.1%.

“The collapse of First Republic saw JPMorgan step up to the plate and squash the biggest market risk on the table,” Edward Moya, of the Oanda trading platform, said in a note.

“It is looking like the stress for the smaller banks is over as we now have a playbook to help the next bank that runs into trouble,” he added.

The takeover of First Republic came after the collapse of three midsized lenders in March, including the high-profile failures of Silicon Valley Bank (SVB) and Signature Bank – which rattled markets and raised contagion worries.

However, Jack Ablin, chief investment officer at Cresset, added that the latest deal would go “a long way to calm investors’ concerns” on turmoil in the sector.

Central bank focus

Looking ahead, investors are closely eyeing the US Fed’s next interest rate decision due tomorrow.

Among other issues, SVB’s failure had come after it took on too much interest rate risk.

The US central bank is widely expected to raise its benchmark lending rate for a 10th and possibly final time, this time by another quarter-point.

For now, the market appears “primed” for the outcome of a rate hike and pause signal, according to Patrick O’Hare of Briefing.com.

Yet others like Moya warn that the Fed could also hold off signalling it is ready to hold rates steady after another increase, if policymakers choose to “remain vigilant”.

Yesterday, a reading by the Institute for Supply Management showed US manufacturing activity contracted for the fifth month in a row.

Most markets across Asia and Europe were closed yesterday for public holidays.

In Asia, the benchmark Nikkei 225 index rose 0.9%, while the broader Topix index ended 1% higher.

IwaiCosmo Securities said “investors are more open to risk-taking” after policy decisions by the Bank of Japan seen as dovish and rallies in European and US markets.

Sydney closed up 0.3%, while Wellington ended down 0.1%.

The euro edged down against the dollar, but was slightly up against the pound.

In Tokyo, SoftBank Group rallied 1.35% after it said its UK-based chip designer Arm has submitted “a draft registration statement” to the US Securities and Exchange Commission related to its planned initial public offering.

Astellas Pharma edged up 2.2% after it said it would acquire US-based Iveric Bio for US$5.9 billion, while Sony Group lost 1.8%. – AFP, May 2, 2023.