Singapore, March 21 (BNA): Asian shares rallied from Tuesday’s lows, with the Credit Suisse bailout prompting a sell-off in bank stocks, although the mood was shaky and pressure in the markets had traders wondering if a rate hike was in the works. The United States is over. .
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.5% in early trade. Australian shares rebounded 1.3% from four-month lows on Monday, and the Hang Seng Index opened up 0.7%.
Japanese markets were closed for a holiday, although the Nikkei futures contract traded in Chicago was in the green.
An early sell-off in Europe reversed overnight and the S&P 500 rose 0.9% on Wall Street. Reuters reported that US futures were up 0.2% in early Asian trade.
The Swiss government-backed takeover of Credit Suisse by UBS shattered immediate concerns about European financial stability. But the elimination of some Credit Suisse bondholders has sent a shockwave through bank debt, and continued signs of stress on US regional lenders are putting investors on high alert.
“Globally, I think we’re a long way from being off the hook in this regard,” said Brian Johnson, a Sydney-based banking analyst at Jefferies, setting the current pressures against a backdrop of rising capital costs and declining loan growth.
San Francisco lender First Republic Bank appears to be a case in point. Its share price halved on Monday amid fears that the $30 billion in deposits made by major banks less than a week ago would not be enough to support its stability.
A write-down of Credit Suisse’s “Tier 1 Plus” debt to zero also prompted a frantic sell-off of similar debt at other banks because shareholders were caught off guard that the long-standing practice of paying creditors before shareholders was not fully followed.
That eased somewhat after regulators in Europe and Britain intervened to reassure investors that it would not set a precedent.
A London-listed exchange-traded fund that tracks such debt pared its sharp losses to close 5.7% lower on Monday, but nerves – and banks’ higher funding costs – are likely to persist.
“It’s still a huge breakdown in how the credit group operates,” Johnson said.
In the foreign exchange markets, the US dollar stabilized after falling overnight. It last bought 131.90 yen, which settled at $1.0718 per euro. Bond markets fell overnight as traders seek to see what the Bank’s pressure on interest rate policy means.
A holiday in Tokyo left Treasuries out of circulation in Asia.
Central bank meetings in Britain and the US are scheduled for this week, with the Fed raising its first rate on Wednesday.
US interest rate futures are priced in at just one basis point hike ahead of a series of cuts starting as early as June. CME FedWatch’s pricing tool shows a 74% chance of a rate hike on Wednesday.
“The near-death experience in the banking sector over the past two weeks is likely to make Fed officials more moderate in their stance on the pace of rallies,” said Steve Englander, head of G10 currency research at Standard Chartered.
“If the Fed pauses, the message may be that it sees more hikes as markets stabilize. But the reality may be that a pause in March effectively ends the walking cycle if the economy slows.”
In commodities markets, demand jitters have caused Brent crude futures to drop below $80 a barrel. In the past they were $73.80. Gold reached a one-year high of $2,009 an ounce overnight, before retreating to $1,979 on Tuesday.
HF