Earlier on Monday, Asia’s share markets slid, with Japan’s financial stocks leading losses as fear of a US banking crisis affected investors ahead of imperative inflation data due later that day.
The fallout from the collapse of US lenders SVB and Signature Bank augmented overnight, in spite of the efforts to boost confidence undertaken by the government. However, heavy selling hit the stocks of US regional banks, and traders raced whirlwinds from bets on US hiked rates, estimating the Fed would now be thinking twice.
It was also estimated that two-year Treasuries had their biggest rally since 1987, and US interest rate futures climbed, with markets pricing out any chance of a 50 basis point rate hike in the upcoming week and broiling in nearly 70 bps of cuts by year end.
Currently, MSCI’s broadest index of Asia-Pacific shares outside Japan is down 0.5% in early trade, with financials in Australia trailing the most.
On the other hand, Japan’s Nikkei declined 2%. Simultaneously, the Tokyo Stock Exchange’s banks index fell 7.4% in early trade, putting it on course for its most substantial drop in three years.
Damien Boey, chief macro strategist at Sydney-based investment bank Barrenjoey said,”Bank runs have started (and) interbank markets have become stressed.”
“Arguably, liquidity measures should have stopped these dynamics, but Main Street has been watching news and queues – not financial plumbing.”
“Fear has started to feed on itself, and higher uncertainty by itself has triggered its own de-leveraging and de-risking dynamics,” he added.
Promptly, overnight, the VIX volatility index, nicknamed Wall Street’s “fear gauge”, surged higher, and other indicators of market stress exhibited early signs of exertion. Moreover, the S&P Banking Index fell 7%, which is its largest single-day percentage drop since June 2020.
Also, big bank shares, including Citigroup, J.P. Morgan, and Wells Fargo, all lost ground, but geographically, First Republic Bank was down 62%, PacWest was down 21%, and Western Alliance was down 47%.
In Tokyo, Resona Holdings faced a decline of 9%, followed by Sumitomo Mitsui Financial Group, which was down 8%.
Joe Biden, President of the US, sought to encourage depositors by vowing to ensure the safety of the banking system in the US. Furthermore, the Fed on Sunday announced a new funding plan to help banks find sterling.
“Banks can now borrow against the par value – and not the lower market value – of their bond portfolios,” he further announced.
In other news, the dramatic re-pricing of the US rate forecast has caused the US dollar to fall.
Later, it was drifting around 133.25 yen and $1.0718 per euro.
Nerves have capped oil prices, with Brent crude futures LCOc1 restrained near $80 a barrel.
Biden also claimed that later in the day, US inflation data is likely to inject more volatility, even if investors notice the Fed giving importance to financial stability.
Jan Nevruzi, strategist at NatWest Markets, said, “The prospect for the market to ‘look through’ strong US data in the current environment could reduce upside US dollar risk through (the) CPI, which would mark a significant departure from the fully data-dependent environment in place as recently as a few days ago.”
- Published By Team Genuine Reporter