Global Markets: SVB contagion fears hammer banks, roil markets

Resona Holdings

14/03/2023 06:27

SINGAPORE, March 14 (Reuters) - Asia's share markets
slid on Tuesday, with financial stocks in Tokyo leading losses
as fear of a U.S. banking crisis had investors fleeing the
sector and slashing the interest rate outlook even ahead of U.S.
inflation data due later in the day.    
    Japan's Nikkei  .N225  dropped 2.2%. The Tokyo Stock
Exchange banks index  .IBNKS.T  fell more than 7%, setting it on
course for its steepest drop in nearly six months. Banks shares
in Singapore and Australia fell. Hong Kong shares in HSBC
 0005.HK  and Standard Chartered  2888.HK  dropped more than 5%.
    Markets remained nervous following the collapse of Silicon
Valley Bank last week and the failure of New York's Signature
Bank over the weekend even after the U.S. government took steps
to shore up systemic confidence.
    Heavy selling hit U.S. regional bank stocks overnight and
traders raced away from bets on U.S. rate hikes, reckoning the
instability would turn policymakers cautious. S&P 500 futures
 ESc1  stabilised in Asia trade and were last up 0.4%.
    Two-year Treasuries  US2YT=RR  steadied after their biggest
rally since 1987, and U.S. interest rate futures  0#FF:  eased
slightly after soaring in New York, when markets priced out any
chance of a 50 basis point Fed hike next week.  FEDWATCH 
    "Bank runs have started (and) interbank markets have become
stressed," said Damien Boey, chief equity strategist at
Sydney-based investment bank Barrenjoey.
    "Arguably, liquidity measures should have stopped these
dynamics, but Main Street has been watching news and queues –
not financial plumbing," he said. "Fear has started to feed on
itself, and higher uncertainty by itself has triggered its own
de-leveraging and de-risking dynamics."
    Overnight the VIX  .VIX  volatility index, nicknamed Wall
Street's "fear gauge", shot higher and other indicators of
market stress showed early signs of strain. The S&P banking
index fell 7%, its largest one-day drop since June 2020. 
    
    JAPAN BETS UNWIND
    In the Asia day, stocks were attempting to stabilise around
lunchtime and had lifted from mid-morning lows. MSCI's broadest
index of Asia-Pacific shares outside Japan  .MIAPJ0000PUS  was
down 1.3%. FTSE futures  FFFc1  indicated a weak open for London
markets.
    Meanwhile bonds in Australia and Korea enjoyed their best
gains in a decade on the radically changed outlook.
    Japanese yields were diving - and dragging on the banks - as
traders quit bets that Japan would soon exit its ultra-easy
policy settings.
    Refinitiv Data showed 10-year Japanese government bond
yields  JP10YT=RR  recoiling from a 50 bp cap and down more than
27 bps in three days, the biggest such move in more than two
decades.
    On stock boards, Resona Holdings  8308.T  led losses with a
9% slide, followed by life insurer T&D  8795.T , down 8%.
    "Bank stocks had run up (when) it was thought that monetary
policy might normalise a bit," said Jamie Halse, who manages a
Japan-focused fund at Platinum Asset Management in Sydney.
    "We've seen the yield on the 10-year (government bond) come
in quite a lot ... now that move upward (for banks) is
reversing."
    Elsewhere, the dramatic re-pricing of U.S. rate expectations
has knocked the U.S. dollar lower.  FRX/ 
    It was last hovering around 133.42 yen  JPY=EBS  and $1.0710
per euro  EUR=EBS .
    Nerves have capped oil prices, with Brent crude futures
 LCOc1  slipping below $80 a barrel.
    U.S. inflation data due later in the day is likely to inject
more volatility, even if investors see the Fed prioritising
financial stability.
    "The prospect for the market to 'look through' strong U.S.
data in the current environment could reduce upside U.S. dollar
risk through (the) CPI, which would mark a significant departure
from the fully data-dependent environment in place as recently
as a few days ago," said NatWest Markets strategist Jan Nevruzi.

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World FX rates YTD    http://tmsnrt.rs/2egbfVh
Global asset performance    http://tmsnrt.rs/2yaDPgn
Asian stock markets    https://tmsnrt.rs/2zpUAr4
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 (Reporting by Tom Westbrook; Editing by Bradley Perrett and
Sonali Paul)
 ((tom.westbrook@tr.com; +65 6973 8284;))
 
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