Asian equities look set to open higher following gains on Wall Street as immediate concerns over the strength of the global financial system dissipated.
(Bloomberg) — Asian equities look set to open higher following gains on Wall Street as immediate concerns over the strength of the global financial system dissipated.
Futures for shares in Australia and Hong Kong pointed higher after the S&P 500 advanced 0.9%, with all 11 groups in index gaining as regulators worldwide rushed to shore up market confidence. Contracts for the gauge and the Nasdaq 100 opened marginally higher in Asia.
The dollar held losses in early Tuesday after a measure of the greenback’s strength dropped to the lowest in a month on Monday as expectations grew that the Federal Reserve may adapt a more cautious policy approach when it decides on interest rates Wednesday.
Investors have increased bets on a quarter-point hike as the recent financial turmoil has spurred speculation on a slower pace of tightening from major central banks worldwide.
Banks enjoyed some relief after days of turmoil that triggered last week’s 15% rout in a guage of US lenders. UBS Group AG rose as investors focused on the upside of its Credit Suisse Group AG takeover.
Government bond yields rose slightly in Australia on Tuesday after Treasuries whipsawed through the global trading day on Monday. The policy-sensitive two year Treasury yield ended Monday 14 basis points higher and just below 4%. There will be no trading of cash Treasuries in Asia hours Tuesday with a holiday in Japan.
To a large extent, the market feels the turmoil is not systemic and there will be a solution to “contain the damage,” according to Chuck Cumello, chief executive officer at Essex Financial Services. That doesn’t mean there won’t be other “landmines” out there, so that’s going to be a challenge, he added.
Indeed, some jitters remain, as seen by First Republic Bank’s 47% slump to a record low. Many commodities remained under pressure as the appeal of risk assets remained blemished.
Morgan Stanley’s Michael Wilson said the stress in the banking system marks what’s likely to be the beginning of a painful and “vicious” end to the bear market in US stocks.
“This is exactly how bear markets end — an unforeseen catalyst that is obvious in hindsight forces market participants to acknowledge what has been right in front of them the entire time,” Wilson wrote.
The Federal Home Loan Bank System issued $304 billion in debt last week, according to a person familiar with the matter, who asked not to be identified discussing non-public data. That’s almost double the $165 billion that liquidity-hungry lenders tapped from the Fed.
Just a couple of weeks ago, investors were betting the Fed would raise rates close to 6% and the European Central Bank would hike past 4%. Now markets imply the tightening cycles are almost over and wager on four rate cuts in the US by year-end. Overnight indexed swaps price in a 75% chance of a quarter-point hike by the Fed this week.
Swap traders currently see the Fed’s benchmark ending the year around 4% — a whole percentage point below the central bank’s rate estimate in the December “dot plot” that comes as part of the quarterly economic projections.
Key events this week:
- US existing home sales, Tuesday
- US Treasury Secretary Janet Yellen to appear at Senate subcommittee hearing, Wednesday
- FOMC rate decision, news conference from Chair Jerome Powell, Wednesday
- EIA crude oil inventory report, Wednesday
- Eurozone consumer confidence, Thursday
- BOE interest rate decision, Thursday
- Swiss National Bank rate decision and press conference, Thursday
- US new home sales, initial jobless claims, Thursday
- US Treasury Secretary Janet Yellen testifies to a House Appropriations subcommittee, Thursday
- Eurozone S&P Global Eurozone Manufacturing PMI, S&P Global Eurozone Services PMI, Friday
- US durable goods, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures rose 0.1% as of 7:30 a.m. Tokyo time. The S&P 500 rose 0.9% on Monday
- Nasdaq 100 futures were little changed. The Nasdaq 100 rose 0.3% Monday
- Australia’s S&P/ASX 200 Index futures rose 0.7%
- Hang Seng Index futures rose 1.3%
Currencies
- The euro was little changed at $1.0724
- The Japanese yen was little changed at 131.40 per dollar
- The offshore yuan was little changed at 6.8744 per dollar
- The Australian dollar was little changed at $0.6719
Cryptocurrencies
- Bitcoin fell 0.3% to $28,002.49
- Ether fell 0.6% to $1,751.35
Bonds
- The yield on 10-year Treasuries advanced six basis points to 3.48% Monday
- Australia’s 10-year yield advanced five basis points to 3.29%
Commodities
- West Texas Intermediate crude fell 0.1% to $67.55 a barrel
- Spot gold was little changed
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Rita Nazareth.
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