24th March 2023 – (Hong Kong) Asian shares tumbled on Friday as concerns over banking stability continued to grip Wall Street. The lingering fears had investors worried that the recent slew of rate hikes by central banks will be among the last of the cycle, leading to policy relief later in the year.
The MSCI’s broadest index of Asia-Pacific shares outside Japan dipped 0.6% on Friday, erasing some of the recent gains to be up 1.7% for the week. Japan’s Nikkei also slid 0.4%. Similarly, China’s bluechips eased 0.4%, Hong Kong’s Hang Seng Index lost 0.7%, and both the S&P 500 futures and Nasdaq futures were in the red.
Japan’s manufacturing activity contracted for a fifth straight month in March, according to data out on Friday. This added to evidence of sputtering global demand, while core consumer inflation in Japan eased, although price pressures persist.
Wall Street closed mixed, with the Dow Jones up 0.2% and the S&P 500 rising 0.3%, after choppy trading late in the day. Meanwhile, the Nasdaq Composite Index jumped 1%, as falling Treasury yields boosted shares of technology firms.
The US Treasury Secretary, Janet Yellen, stated on Thursday that she was prepared to take further actions to ensure bank deposits are safe. This was a day after saying that blanket insurance was not on the agenda.
“They’re still struggling with what they do in terms of uninsured bank deposit…that’s what’s partly given us the roller coaster ride a little bit in share markets,” said Shane Oliver, chief economist at AMP.
Markets, however, have bet on a recession and incoming rate cuts. Key parts of the U.S. yield curve steepened, signaling a recession is at the doorstep.
Investors are also leaning towards a pause from the Fed at the policy meeting in May, after the latest dovish hike on Wednesday. They have also priced in rate cuts of accumulated 80 basis points to about 4% by the end of the year, amid fears of policy tightening and a brewing banking crisis driving the economy into a recession, despite the pullback from Chair Powell.
“It is an environment of uncertainty. I mean, it’s not as if the Fed knows either and the market could be right,” said Oliver at AMP.
Treasury yields were attempting to find a floor amid the market volatility. Two-year Treasury yields, which fell a whopping 125 basis points within just two and a half weeks, were steady at 3.8288% on Friday.
Ten-year yields held at 3.4079%, after edging nine basis points lower in the previous session. The Bank of England overnight raised borrowing costs for the 11th time in a row after a nasty inflation surprise. However, it said a resurgence in inflation would probably fade fast, prompting speculation that it had ended its run of hikes.
The Swiss National Bank also jacked up rates despite a torrid week following the takeover of Credit Suisse. The US dollar was headed for a heavy 1.2% weekly loss against its major peers at 102.63, not too far away from a seven-week trough of 101.91.
The euro came off from its seven-week high of $1.0929 overnight and stabilizes at $1.083, while the yen was nearing its six-week high at 130.7 per dollar.
