Japan’s Nikkei fell 2%. (File)
Singapore:
Asian stock markets fell on Tuesday, with Japanese financial stocks leading losses as fears of a US banking crisis spooked investors ahead of key inflation data expected later in the day.
US lenders expanded overnight despite government efforts to shore up confidence in the wake of the collapse of Silicon Valley Bank and Signature Bank. A heavy sell-off weighed on regional US bank stocks and traders backed off bets on a US rate hike, suggesting the Fed will now think twice.
Two-year Treasuries had their biggest rally since 1987 and U.S. interest rate futures rose — with markets pricing in any possibility of a 50 basis-point rate hike next week and about 70 bps down by the end of the year.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.5% in early trade on Tuesday, with financials in Australia the biggest laggards.
Japan’s Nikkei fell 2%. The Tokyo Stock Exchange’s banks index fell 7.4% in early trade, making it its steepest decline in three years.
“Bank runs have started (and) the interbank markets are in turmoil,” said Damien Boey, chief equity strategist at investment bank Barrenjoey in Sydney.
“Liquidity measures were supposed to stop this dynamic, but Main Street was watching news and queues, not financial pipelines,” he said. “Fear began to feed on itself, and heightened uncertainty created a dynamic of self-cancellation and risk reduction.”
The VIX volatility index, nicknamed Wall Street’s “fear gauge,” surged overnight and other indicators of market stress showed early signs of strain. The S&P Banking Index fell 7%, its biggest one-day decline since June 2020.
Major bank stocks including JP Morgan, Citigroup and Wells Fargo all lost, but First Republic Bank fell 62%, Western Alliance fell 47% and PacWest fell 21%, hitting the regions hardest.
In Tokyo, Resona Holdings led losses, down 9%, followed by Sumitomo Mitsui Financial Group, which fell 8%.
President Joe Biden sought to reassure depositors by promising to keep the US banking system safe, and the Fed on Sunday announced a new funding mechanism to help banks find ready cash.
Banks can now borrow against the face value of their bond portfolio, rather than the lower market value.
Elsewhere, a sharp reassessment of US exchange rate expectations weighed on the US dollar. [FRX/]
It last traded at 133.25 yen and 1.0718 dollars per euro.
Nerves capped oil prices, with Brent crude futures nearing $80 a barrel.
While investors will see the Fed prioritizing financial stability, U.S. inflation data later in the day could add to volatility.
“Currently strong US data is likely to reduce the upside risk to the US dollar with the prospect of a ‘look’ market (CPI), which shows a significant departure from a completely data-driven environment of late.” days ago,” said NatWest Markets strategist Ian Nevrouzi.
(Except for the headline, this story was not edited by NDTV staff and was published on a syndicated channel.)
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