Asian markets are oozing with banking turmoil to end a tumultuous week

  • Asian Stock Markets:
  • The ECB delivered a 50 basis point hike as promised, dropped forecasts
  • Credit Suisse shares rallied 20% after support from the SNB
  • First Republic Bank Gets $30 Billion Injection, Concerns Remain
  • Fed data showed banks were looking for record emergency liquidity

SYDNEY, March 17 (Reuters) – Asian markets extended a risk rally on Wall Street on Friday to end a tumultuous week in which a looming banking crisis sent bond yields slumping as market participants sharply cut expectations of future rate hikes in Western economies.

The optimism is expected to spill over to Europe, with pan-regional Euro Stoxx 50 futures rising 0.6%. S&P 500 futures rose 0.1%, while Nasdaq futures rose 0.2%.

Overnight, the European Central Bank (ECB) pushed an inflation-fighting rate hike of 50 basis points in line with oft-repeated guidance, with sentiment bolstered by the Swiss National Bank’s massive backing of Credit Suisse Group AG (CSGN .S), which sent the troubled lender’s shares up 20%.

To further help sentiment, as many as 11 U.S. banks, including JPMorgan Chase & Co (JPM.N), will deposit a whopping $30 billion into First Republic Bank (FRC.N).

In an indicator that all worries have not subsided, shares of the bank, which had closed 10% higher after a volatile day that saw trading shut down 17 times, fell 17% in aftermarket trading.

Also, overnight data showed banks sought record amounts of emergency liquidity from the Federal Reserve in recent days, underlining the magnitude of the stress in the financial system.

In Asia, MSCI’s broadest index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) rose 1.6% on Friday, reversing previous weekly losses by 0.7%. Japan’s Nikkei (.N225) climbed 1.2%.

China’s bluechips (.CSI300) rose 1.3%% and the Hong Kong Hang Seng Index (.HSI) rose 1.8% after data showed China’s home prices made a more decisive gain in February, marking a economic recovery confirms.

Meanwhile, global central bankers on Thursday introduced what market watchers interpreted as an emerging effort to curb the rate hikes needed to fight inflation from separate efforts to calm financial stability concerns.

Following hikes as indicated, the ECB refrained from providing guidance on future rate hikes. Euribor futures are up a quarter point to 3.25% at the next ECB policy meeting and the possibility of another fully priced in.

Goldman Sachs now sees interest rates peak at 3.5%, compared to an earlier forecast of 3.75%.

Markets are also back to a stunning price hike of another 25 basis points from the US Federal Reserve at next week’s meeting, though there is a 20% chance the Fed will pause instead.

“The headlines clamoring that the US has seen its biggest bank collapse since 2008 naturally raise fears of a repeat of the GFC. However, the situation today is radically different from 2008,” said Shane Oliver, chief economist at AMP Bank, referring to the global financial crisis.

“Whether it’s the kind of crisis that ended in the past and then reversed by the Fed’s monetary tightening is still unclear.”

Two-year Treasury yields continued to rise on Friday, rising 5 basis points for the last time to 4.1762%, removing the six-month low of 3.7200% reached earlier this week. However, yields were on track for a weekly drop of 41 basis points, the sharpest decline since February 2020, when markets were thrown into chaos by COVID-19 fears.

The 10-year yield was broadly stable at 3.5600% on Friday and is expected to fall 13 basis points weekly.

The US dollar reversed some of its safe haven flows, with the dollar index falling 0.3% last to 104.4.

The Japanese yen gained 0.6% to 132.93 per dollar, while the euro rose 0.4% to $1.0647.

Officials from the Japanese Ministry of Finance, the Financial Services Agency and the Bank of Japan will meet on Friday at 0745 GMT to discuss developments in the financial markets.

“The past week has provided an unwelcome reminder of the inherent fragility of banking systems,” Capital Economics analysts said in a note to the client.

“There is still a lot of uncertainty. The main question is whether this episode is another relatively short period of volatility that is quickly fading away, or the first shocks of a major banking crisis. At this stage, the answer is unknowable.”

Oil prices retraced previous losses and rose 1% on Friday, though they were on track to fall 10% this week. US crude rose 1.0% to $69.06 a barrel, while Brent oil also rose 1% to $75.5 a barrel.

Gold was slightly higher. Spot gold traded at $1930.03 an ounce, heading for a weekly gain of 3.3%.

Reporting by Stella Qiu; Edited by Christopher Cushing

Our Standards: The Thomson Reuters Principles of Trust.

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