Asian markets take a breather after banking turmoil, capping a tumultuous week

SYDNEY, March 17 (Reuters) – Asian markets extended their risk rally on Wall Street on Friday to end a tumultuous week that saw an incipient banking crisis send bond yields plunging while market participants cut sharply their expectations of future interest rate hikes in Western economies.

Optimism is expected to spread to Europe, with pan-regional Euro Stoxx 50 futures up 0.6%. S&P 500 futures rose 0.1% while Nasdaq futures gained 0.2%.

Overnight, the European Central Bank (ECB) hiked rates by 50 basis points to fight inflation, in line with oft-repeated forecasts, with sentiment bolstered by massive support from the National Bank Swiss to Credit Suisse Group AG (CSGN.S), which sent the troubled lender’s shares 20% higher.

To further bolster sentiment, as many as 11 US banks, including JPMorgan Chase & Co (JPM.N), will deposit up to $30 billion in First Republic Bank (FRC.N).

In an indicator that all worries have not gone away, shares of the bank, which had closed up 10% after a volatile day that saw trading halt 17 times, fell 17% after the market .

In addition, data showed overnight that banks have requested record amounts of emergency liquidity from the Federal Reserve in recent days, underscoring the extent of strain in the financial system.

In Asia, MSCI’s broadest index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) jumped 1.6% on Friday, helping to reverse earlier losses to rise 0.7% on the week. The Japanese Nikkei (.N225) climbed 1.2%.

Chinese bluechips (.CSI300) jumped 1.3%% and Hong Kong’s Hang Seng Index (.HSI) rose 1.8%, after data showed house prices in China made a more decisive gain in February, confirming an economic recovery.

Meanwhile, world central bankers on Thursday presented what market watchers interpreted as an emerging effort to firewall rate hikes needed to fight inflation from separate efforts to assuage worries about financial stability.

After rising as indicated, the ECB refrained from providing advice on future rate hikes. Euribor futures have fully priced in a quarter point rise to 3.25% at the next ECB policy meeting and the possibility of another.

Goldman Sachs now sees rates peaking at 3.5%, down from a previous forecast of 3.75%.

Markets also rallied prices massively from another 25 basis point hike from the US Federal Reserve at its meeting next week, although there is a 20% chance the Fed will make a move. pause instead.

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

“Whether this is the type of crisis that in the past ended and then reversed by Fed monetary tightening is still unclear.”

Two-year Treasury yields continued to climb on Friday and last rose 5 basis points to 4.1762%, moving away from a six-month low of 3.7200% hit earlier this week. . Yields, however, were heading for a weekly decline of 41 basis points, the steepest since February 2020, when markets were thrown into chaos by fear of COVID-19.

Ten-year yields were mostly flat at 3.5600% on Friday and were forecast for a weekly decline of 13 basis points.

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

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

Officials from Japan’s Ministry of Finance, Financial Services Agency and Bank of Japan will meet at 07:45 GMT on Friday to discuss financial market developments.

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

“There is still a lot of uncertainty. The key question is whether this episode proves another relatively brief period of volatility that will soon fade away, or the first tremors of a major banking crisis. At this point, the answer is unknowable.”

Oil prices reversed earlier losses to rise 1% on Friday, although they were heading for a 10% decline for the week. U.S. crude rose 1.0% to $69.06 a barrel, while Brent crude also jumped 1% to $75.5 a barrel.

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

Reporting by Stella Qiu; Editing by Christopher Cushing

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