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Asian Stock Markets: https://tmsnrt.rs/2zpUAr4
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Nikkei up 0.1%, S&P 500 futures up 0.5%
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Eyes on Deutsche Bank, Credit Default Swaps
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Deposits flow from banks to money market funds
By Wayne Cole
SYDNEY, (Reuters) – Asian stocks trailed US stock futures higher on Monday on hopes authorities were working to contain stress in the global banking system, even as the cost of insuring against default rose to dangerous levels approached.
Nerve-racking were reports that First Citizens BancShares Inc was in advanced talks to acquire Silicon Valley Bank from Federal Deposit Insurance Corp.
S&P 500 futures were up 0.5% in early trade, while Nasdaq futures were up 0.4%.
MSCI’s broadest index of Asia-Pacific stocks outside Japan edged up 0.1% on trading cautious. Japan’s Nikkei rose 0.1% and South Korea rose 0.2%.
Sentiment remained jittery after shares of Deutsche Bank fell 8.5% on Friday and the cost of insuring its bonds against the risk of default rose sharply, along with many other banks’ credit default swaps (CDS).
“The current level of credit default swaps for European banks is only slightly lower than at the height of the European financial crisis in 2013,” noted Naeem Aslam, chief investment officer at Zaye Capital Markets.
“If these CDS don’t normalize, it’s highly likely that the stock market will suffer for many more days.”
Over in the United States, depositors fled from smaller banks to their larger cousins or to money market funds. Money market fund inflows surged by more than $300 billion last month to a record over $5.1 trillion.
Minneapolis Fed President Neel Kashkari said Sunday officials would be watching “very, very closely” for whether the bank stress was leading to a credit crunch that threatened to plunge the economy into a recession.
That in turn means the Fed is closer to a peak in interest rates, he added. Markets are well ahead of the central bank, pricing around an 80% chance that rates have already peaked, while a first rate cut is expected as early as July.
The story goes on
Fed Governor Philip Jefferson will speak later Monday, while Fed Vice Chairman Michael Barr will testify before the Senate on “bank oversight” on Tuesday.
Two-year Treasury yields are down a staggering 102 basis points to 3.77% so far this month, while the full 30-year yield curve is below the 4.85% effective policy rate.
That drop has weighed on the dollar at times, at least against the safe-haven Japanese yen, where it stands at 130.85 yen after hitting a seven-week low of 129.65 last week.
The euro suffered a setback of its own on Friday amid worries about the German, last trading at $1.0767, well below last week’s high of $1.0930.
The drop in yields has combined with a flight from risk to polished gold, which has traded at $1,975 an ounce after hitting a high above $2,009 last week.
Oil prices were more resilient early Monday but still posted losses of almost 10% for the month as worries about global growth undermine commodities in general.
Brent rose 43 cents to $75.42 a barrel, while US crude rose 47 cents to $69.73 a barrel.
(Reporting by Wayne Cole; Editing by Sam Holmes)
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