Singapore, May 3 (BNA): Asian stock markets fell in thin trading on Wednesday, as investors grappled with signs of a weak US economy and were on the run from US regional lenders, ahead of an expected US interest rate hike later. day.
Holidays closed markets in China and Japan. The Hong Kong stock exchange was open and declining, which led to MSCI’s broader index of Asia-Pacific stocks, excluding Japan, dropping 1%.
A decline in regional bank stocks weighed on Wall Street, and oil also suffered big losses, with concerns that a tightening of lending by banks along with a slowing labor market were harbingers of a broader slowdown on the horizon.
Bonds and gold held the gains. The dollar was sliding, and it was caught in a crosswind of declining yields and mounting nerves. S&P 500 futures rose 0.1%; European futures rose 0.5%, but the mood was cautious with banks in the crossfire.
On Tuesday, US regional markets took a hit, with PacWest Bancorp down 27.8%, Western Alliance Bancorp down 15.1%, and Comerica Inc down 12.4%.
“Short sellers seem to have gone to town, and as any stock trader will attest, when you know there is a wall of sellers, you stand aside,” said Chris Weston, head of research at Melbourne brokerage Pepperstone.
After the failures of Silicon Valley and Signature Bank in March, the collapse of the First Republic over the weekend led to confidence in smaller lenders slowing down and investors’ broader willingness for banks to tighten lending in response.
Data on Tuesday showed that in Europe, where a crisis of confidence forced Credit Suisse into the arms of bigger rival UBS six weeks ago, banks have turned the credit taps sharply shut, potentially making less of an argument for a rate hike this week.
“This reinforces the idea of 25 basis points from the ECB this week instead of 50 basis points,” said NatWest Markets interest rate analyst Jan Nefrozi. “And we also plant the seed in our minds that if this is what happened in Europe, it could be much worse here in the United States.”
The markets are pretty sure that the Fed will announce a 25bp increase at 18:00 GMT. If that happens, the focus will be on whether Fed Chairman Jerome Powell, or how hard he pushes investor expectations for a rate cut by the end of the year.
“The increase will be a reflection acknowledging the rising risks in both directions and the narrow path to a soft landing,” said Vishnu Varathan, head of economics at Mizuho Bank in Singapore.
Currency markets were flat and awaiting guidance from the Federal Reserve, with the exception of the New Zealand dollar, which rose about 0.6% to a three-week high of $0.6242 after strong jobs data fueled expectations of another rate hike later this month.
The Australian dollar gave up some of its gains on Tuesday, after a surprise rate hike from the central bank, and settled at $0.6664.
The euro rose 0.2% to $1.1023, while the yen took a break as Japan entered the “Golden Week” holiday season, rising about 0.4% to $136.02 per dollar. Brent crude, which fell 5% overnight, remained at $75.29 a barrel.
Gold is hovering above $2,000 an ounce.
Cash Treasuries did not trade due to the holiday in Tokyo, leaving the two-year yield down 16 basis points overnight to 3.9737% and the 10-year yield at 3.4352%.
Investors view the looming US debt ceiling warily as lawmakers squabble and Treasury Secretary Janet Yellen warns the government could run out of money as soon as June 1.
Treasury bill yields outstanding at that time rose.
“Either this game will be over in a few weeks, or we will see a suspension of the debt limit until later this year,” said Philippe Marie, a strategist at Rabobank.
“Either way, we are not likely to see any resolution until the financial markets start to panic.”
HF