Asian equities dropped Tuesday while bonds in the region rallied as the collapse of Silicon Valley Bank continued to reverberate across global markets.
(Bloomberg) — Asian equities dropped Tuesday while bonds in the region rallied as the collapse of Silicon Valley Bank continued to reverberate across global markets.
Shares benchmarks fell more than 2% in Japan and Australia. Futures for Hong Kong’s key gauge were also lower. Policy-sensitive two-year government bond yields tumbled more than 20 basis points in New Zealand, as did the rate on Australia’s three-year maturity.
The yield on the two-year Treasury note climbed around seven basis points in early trading in Asia after its biggest one-day slump in decades on Monday. It logged the biggest three-day retreat since Black Monday of October 1987.
The dollar steadied after erasing its gains for the year. The yen, Australian dollar and offshore yuan all appreciated more than 1% against the greenback on Monday.
“Global bond markets are suggesting a global economic slowdown, which is not great for Asia, but the good news is that Japan’s major banks don’t seem likely to have the same problem as some US banks,” said John Vail, chief global market strategist for Nikko Asset Management Co.
The KBW Bank Index on Monday logged its biggest one-day drop since the start of the Covid-19 pandemic. Asian investors are also watching the region’s banking stocks, which were under some pressure Monday. Financial stocks were again among the notable decliners in Japan.
The recent market turmoil has caused a swift reassessment over the direction of Fed policy. Swaps traders are now pricing a less than 60% chance the Fed will hike by another quarter percentage-point later this month.
“The real risk is that we’re going to get a policy mistake because market are clearly not certain what the Fed is gonna do. There’s so many moving pieces and this is creating a lot of angst for participants,” Gareth Nicholson, Nomura chief investment officer and head of discretionary portfolio management, said on Bloomberg Radio.
Rate Bets
Goldman Sachs Group Inc. economists as well as asset managers at the world’s largest actively managed bond fund from Pacific Investment Management Co. said the Fed could take a breather on the policy rate following the collapse of SVB. Nomura economists took it one step further, saying the Fed could cut its target rate next week.
Expectations had weighed a hike of as much as 50 basis points after Chair Jerome Powell addressed lawmakers last Tuesday. Traders will soon turn their attention back to US consumer price index report, which could drive further bets on the Fed’s next move.
The S&P 500 closed Monday down 0.2%, after bouncing between gains and losses amid a rout in bank shares while the policy-sensitive Nasdaq climbed 0.8%, the most in over a week. The fallout from SVB’s collapse prompted President Joe Biden to promise stronger regulation of US lenders, while reassuring depositors that their money is safe.
Key events this week:
- US inflation, Tuesday
- China retail sales, industrial production, medium-term lending, surveyed jobless rate, Wednesday
- Eurozone industrial production, Wednesday
- US business inventories, retail sales, PPI, empire manufacturing, Wednesday
- Eurozone rate decision, Thursday
- US housing starts, initial jobless claims, Thursday
- Janet Yellen appears before the Senate Finance Committee, Thursday
- US University of Michigan consumer sentiment, industrial production, Conference Board leading index, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures rose 0.2% as of 9:23 a.m. Tokyo time. The S&P 500 fell 0.2% Monday
- Nasdaq 100 futures rose 0.3%. The Nasdaq 100 rose 0.8%
- Japan’s Topix index fell 2.6%
- Australia’s S&P/ASX 200 Index fell 2.1%
- Hong Kong’s Hang Seng futures fell 0.3%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro fell 0.1% to $1.0718
- The Japanese yen was little changed at 133.20 per dollar
- The offshore yuan fell 0.1% to 6.8594 per dollar
- The Australian dollar fell 0.2% to $0.6654
Cryptocurrencies
- Bitcoin fell 0.2% to $24,196.7
- Ether rose 0.6% to $1,682.55
Bonds
- The yield on 10-year Treasuries declined two basis points to 3.56%
- Australia’s 10-year yield declined 18 basis points to 3.34%
Commodities
- West Texas Intermediate crude fell 0.4% to $74.53 a barrel
- Spot gold fell 0.1% to $1,911.09 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Isabelle Lee, Emily Graffeo and Richard Henderson.
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