©Reuters. FILE PHOTO: A man walks past an electronic board displaying Japan’s Nikkei average and stock prices outside a brokerage firm March 17, 2023 in Tokyo, Japan. REUTERS/Androniki Christodoulou
By Tom Westbrook
SINGAPORE (Reuters) – Stock futures and Asian equities struggled to stabilize on Monday as weekend trading to bail out Credit Suisse and central bank liquidity promises offered little lasting respite from fears a wider banking crisis was brewing.
Early gains for and European futures evaporated to trade flat by midday in Tokyo. A Japanese bank’s index fell 1.8%. The lost 1%. Bank stocks led a 1.2% decline for MSCI’s broadest index of Asia-Pacific stocks outside of Japan.
Over the weekend, UBS announced that it would buy Credit Suisse for CHF 3 billion ($3.2 billion). The Federal Reserve, the European Central Bank and the Bank of Japan have pledged to make buying dollars even easier and increase the frequency of delivery operations.
But with some Credit Suisse bondholders left stranded and nerves running high after a week that has seen US regional lenders mounting concerns about a large systemically important bank in the heart of Europe, investors are reluctant to take risks.
“This time last week when we were talking about SVB and Signature, it was very different in that we were just talking about depositors and not asset quality,” said Steven Major, global head of fixed income research at HSBC.
“This week we moved to Europe and we’re looking at assets… everyone who said last week you couldn’t compare subprime mortgages and subprime bonds to this crisis – well actually it’s moved on. “
On the positive side on Monday, no one took up the Bank of Japan’s dollar offer. Yen cross-currency swaps, another measure of dollar demand, also shrank to half last week’s levels, in another indication of respite.
But broader FX markets traded sideways after an early knee-jerk move out of safe-haven currencies fizzled.
US Treasuries also fueled a small sell-off. The Fed meets on Wednesday but investors are focused on the coming hours first. “It’s pretty wild and there’s probably still a lot of volatility to come,” said Jason Wong, strategist at BNZ.
“We still have a few days to get through.”
“STABILITY RISKS”
As Europe’s day begins, several nagging issues are in focus.
On the one hand, deposit insurance and – in the case of Credit Suisse borrowing directly from the central bank – despite liquidity support were not enough to corrode the situation.
Another reason is that some junior bondholders appear to be left with nothing at all after Credit Suisse announced that such debt would be written down to zero – scaring off similar bondholders at other banks and raising the specter of bank funding stress.
“Investors are trying to price out stability risks, but they also need to write down their assets to save depositors,” said Damien Boey, chief equity strategist at Sydney-based investment bank Barrenjoey.
“The key question is whether solvency or liquidity issues are sufficiently addressed by bailout/merger attempts to halt the deposit runs. The answer is not yet clear.”
Interest rates are also likely to remain volatile amid concerns about regional banks in the United States.
A US official said Sunday deposit outflows had slowed and, in some cases, reversed. But First Republic’s credit rating has also been pushed further into junk status by S&P Global (NYSE:) and elsewhere, efforts to raise capital have encountered difficulties.
Benchmark 10-year government bond yields were back at 3.43% after rising as high as 3.52%. Two-year yields, which have fallen to 3.87%, are well below the Fed’s current benchmark rate of 4.6%, suggesting investors are expecting rates to fall soon.
Futures markets have been volatile and last Wednesday were pricing in a roughly 60% chance of the Fed raising rates by 25 basis points before embarking on a series of steady rate cuts as early as June.
Comments are closed.