Asian equities are set to climb after a rescue package for First Republic Bank sparked a rebound in US shares. Treasuries fell after the European Central Bank delivered a rate hike that added to bets the US central bank will also raise next week.
(Bloomberg) — Asian equities are set to climb after a rescue package for First Republic Bank sparked a rebound in US shares. Treasuries fell after the European Central Bank delivered a rate hike that added to bets the US central bank will also raise next week.
Stock futures for benchmarks in Japan, Hong Kong and Australia rose after declines on Thursday. The S&P 500 notched its largest one-day advance since January after the biggest US lenders agreed to contribute $30 billion in deposits to First Republic, easing speculation that the bank could be the next to fail after two high-profile demises touched off the crisis last week.
Bond yields climbed in Australia on Friday. That followed a 27 basis point recovery in the rate on the two-year Treasury to above 4%, as traders who on Wednesday had largely abandoned bets for a ninth Fed rate hike next week upgraded the odds of a quarter-point move back to around 80%. Markets were also digesting a European Central Bank rate hike and comments from the ECB president that inflation is projected to remain too high for too long.
Meanwhile, Treasury Secretary Janet Yellen’s prepared remarks presented to Capitol Hill Thursday “did a good job of boosting confidence about the banking system,” said Art Hogan, chief market strategist at B. Riley Wealth Management.
“They’d like to see the support come from the private sector and that is likely going to be now the first of many larger, more sound banks supporting some of those banks that might have impaired balance sheets,” Hogan said of the big lenders coming to the regional bank’s aid.
The First Republic news came after a lifeline from Swiss regulators earlier this week stabilized Credit Suisse Group AG, easing worries that the European lender would lead to a cascading crisis in that region. The idea of a forced combination with a larger rival, UBS Group AG, was shot down on Thursday and receipts in Credit Suisse ended the session unchanged. The cost to insure the Swiss bank’s debt has been rising.
“That the market is reacting relatively positively to the fact that we are applying some guardrails here shouldn’t necessarily be a catalyst for markets to move much higher,” said Meera Pandit, JPMorgan Asset Management global market strategist on Bloomberg TV. “There is still some vulnerability here to a correction because we don’t know how this continues to evolve.”
Friday’s quarterly triple witching, where contracts for index futures, equity index options and stock options all expire, could amp up swings in trading.
Signs that the banking crisis appeared to be easing also helped lift commodities, with a gauge of 24 raw materials rising from its lowest since January 2022. Oil has climbed out of oversold territory as the banking-sector turmoil overshadowed hopes for a strong demand in recovery in China. Gold is set for its biggest weekly gain since Jan. 13 as traders fled to haven assets.
All eyes are now on the Federal Reserve’s policy meeting next week, with traders debating whether the central bank will increase interest rates. Market pricing suggests the Fed will soon pivot and will start cutting rates this year.
Data Thursday showed first-time unemployment claims dropped more than analysts’ estimates last week, while housing starts and building permits exceeded expectations, underscoring the economic resilience that’s allowed the Fed to tighten aggressively over the past year.
“Central banks appear to be willing to push through the problems higher rates are causing in order to address inflation,” Louis Navellier, chief investment officer of Navellier & Associates wrote in his daily newsletter. He views the ECB’s rate increase as a “test run” ahead of the next Fed meeting.
“All else being equal, more restrictive lending increases recession risk,” he said. “Expect lots of volatility in the near term and remain cautious as this banking crisis plays out.”
Stocks
- S&P 500 futures were little changed as of 7:07 a.m. Tokyo time. The S&P 500 rose 1.8%
- Nasdaq 100 futures were little changed. The Nasdaq 100 rose 2.7%
- Hang Seng futures rose 1.2%
- Nikkei 225 futures rose 1%
- S&P/ASX 200 futures rose 0.4%
Currencies
- The Bloomberg Dollar Spot Index fell 0.3%
- The euro was little changed at $1.0611
- The Japanese yen rose 0.1% to 133.60 per dollar
- The offshore yuan was little changed at 6.8978 per dollar
- The Australian dollar was little changed at $0.6652
Cryptocurrencies
- Bitcoin rose 0.8% to $24,946.7
- Ether rose 1% to $1,675.9
Bonds
- The yield on 10-year Treasuries advanced 12 basis points to 3.58%
- Australia’s 10-year yield advanced 11 basis points to 3.44%
Commodities
- West Texas Intermediate crude was little changed
- Spot gold was little changed
–With assistance from Carly Wanna and Angel Adegbesan.
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