Regionals Spoil the Banking Party

Regional Banks Disrupt Market Recovery Amid Financial Turmoil

By Alden Bentley

NEW YORK (Reuters) -Making sense of the forces driving global marketsBy Alden Bentley, Editor in Charge, Americas Finance and Markets        Jamie is enjoying some well-deserved time-off, but the Reuters markets team will still keep you up to date on what markets were focused on today and why they took a breather. I'd love to hear from you so please feel free to reach out at

Today's Key Reads

* U.S. judge blocks Trump's plan to lay off thousands ofgovernment workers * Exclusive-Fed's Miran says he is not focused on assetprice boom in push for lower rates * Bank of Japan must tread carefully in normalizingpolicy, central bank official says * Wall Street drops as Zions sparks worries about regionalbanks  Today's Key Market Moves * On Wall Street the S&P 500 was down about 1% in lateafternoon trade and the Nasdaq was down 0.85% * U.S. Treasury yields fell below 4%, ending 7.4 basispoints lower at 3.9707% * The dollar index <USD=> fell 0.35% and dollar/yen fell0.46% * U.S. crude oil <CLc1> fell 1.29% to $57.51 a barrel  * Gold bullion rose 2.03% to $4,292.79 an ounce

Today's Key Talking Points

Regionals spoil the banking party

Tumbling financial stocks stole the punchbowl from the S&P's cautious recovery. Zions Bancorp disclosed a $50 million third-quarter loss on souring California loans, which was enough to sap the remaining bullishness from strong earnings reports from six of the nation's largest banks on Tuesday and Wednesday. The S&P 500 Banks index fell 3.5%, more than reversing a 1.2% gain the previous session.  The KBW regional bank index fell 7%.

Meanwhile, optimism about artificial intelligence was not sufficient to hold the market together. An early rally by chipmakers buoyed things after Taiwan's TSMC 2330.TW, the world's largest maker of advanced semiconductors, raised its full-year revenue forecast on a bullish outlook for AI spending. The market was fragile given the recent downward spiral in U.S.-China trade relations, even as the big banks provided hopeful signs of economic resilience, at a time when economic data, good or bad, is in short supply due to the ongoing government shutdown. 

Greenback in the red 

The U.S. dollar logged its third consecutive down session against major currencies including the euro, yen and Swiss franc amid U.S.-China tensions. China accused the U.S. of stoking panic over its rare earth controls and said Treasury Secretary Scott Bessent had made "grossly distorted" remarks about a top Chinese trade negotiator, rejecting a White House call to roll back the curbs.

Dollar/yen extended its loss after U.S. midday after Seiichi Shimizu, the Bank of Japan's assistant governor, said the central bank must be careful when normalizing monetary policy due to uncertainty about how the economy would react to a new environment of positive interest rates. Fed Governor Christopher Waller said he supported an additional interest rate cut in October due to mixed readings on the state of the job market.

A parade of Fed speakers this week, including Chair Jerome Powell, did not dampen conviction that the Fed policy meeting at the end of the month will end with another rate cut. The blackout period starts Saturday and the last speaker before things go quiet is St. Louis Fed President Alberto Musalem on Friday.

Stars aligned for gold

Gold hit a record high for the fourth straight session. The venerated safe-haven metal has gained over 60% year-to-date, driven by geopolitical tensions, aggressive rate-cut bets, central bank buying, de-dollarization and robust ETF inflows. 

What could move markets tomorrow?

* No major U.S. corporate earnings or economic data * St. Louis Fed President Alberto Musalem speaks

Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

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(By Alden Bentley; Editing by Nia Williams)