Stocks tread water ahead of key US inflation data

A Federal Reserve survey showed banks have tigthened lending standards in the wake of the the failure of four mid-sized US banks . ©AFP

New York (AFP) - European and US stocks ended little changed on Monday as investors awaited key inflation data and digested a survey of lenders that showed greater caution among US banks.

While Asian markets had rallied, tracking the strong gains in New York last Friday after a forecast-busting US jobs report, Monday's session elsewhere was muted.

The Paris market ended slightly higher and Frankfurt slipped, while London was closed for a bank holiday to mark the weekend's coronation of Charles III.

In New York, the Dow edged lower, but both the S&P 500 and Nasdaq finished with slim gains.

"Ultimately, the major indices closed the session near their flat lines, sporting only modest gains or losses," said Briefing.com.

A much-anticipated Federal Reserve survey of banks showed a tightening of lending standards in the first few months this year, with banks expecting this to continue over the rest of 2023.

The report comes as the financial sector contends with deposit outflow worries on the back of turmoil after the high-profile collapse of Silicon Valley Bank and Signature Bank in March.

Asked about their outlook for lending standards over the rest of 2023, "banks reported expecting to tighten standards across all loan categories," the Fed said on Monday.

Regional banks gave back most early gains and were mixed at the end of the day.

Markets are looking ahead to Wednesday's release of key consumer price data, which will be followed by a reading on wholesale prices the next day.

The reports are key inputs on the progress made since the Fed began significantly hiking interest rates more than a year ago in response to inflation.

Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, cautioned that "any upside surprise in inflation figures would bring the Fed hawks back to the market", potentially weighing on stocks.

There are also growing worries about a possible catastrophic US debt default, as right-wing Republicans square off against President Joe Biden over spending plans.

Treasury Secretary Janet Yellen is warning the country could run out of cash to pay its bills as soon as the start of June unless Congress raises the debt limit.

While many commentators believe lawmakers will come to a deal to lift the borrowing ceiling, as they have every time in the past, there remain fears that the unthinkable could happen and spark an economic crisis.