May 3 (Reuters) – A look at the day ahead in Asian markets by Jamie McGeever.
Perhaps the US banking turmoil of March 2023 wasn’t boxed up, tied with a bow and shelved for posterity after all.
Shares in regional US banks were flattened on Tuesday – PacWest BanCorp lost a quarter of its market cap – setting a somber and dovish tone for Asian markets on Wednesday ahead of the Federal Reserve’s latest interest rate decision.
The US regional bank index fell 5.5% on Tuesday, the biggest drop since the depths of the crisis in mid-March. The index is at a two and a half year low and has lost a third of its value in the past two months.
Not coincidentally, renewed concerns about the US banking system following JP Morgan’s recent takeover of failed First Republic Bank also coincided with weaker-than-expected US jobs data and rising concerns over the US debt ceiling stalemate.
Global nervousness also intensified on Tuesday – the hike in the Reserve Bank of Australia’s shock rate, a weak European Central Bank lending survey and a 5% plunge in oil prices painted a bleak picture for the global economy.
Brent crude is now down almost 30% year-on-year – a huge disinflationary boost to the global economy.
That could feed into the considerations of Malaysian politicians as they prepare to make their latest interest rate decision on Wednesday. Twenty-one out of 25 economists polled by Reuters expect interest rates to be kept at 2.75% for the third consecutive day, while the other four forecast a quarter-point hike.
Not only that, according to the Reuters poll, Bank Negara Malaysia is expected to keep rates on hold for the rest of this year and all of next year.
However, as the RBA reminded everyone on Tuesday, policymakers still retain the ability to surprise. Surely the Fed isn’t going to throw a curve ball later on Wednesday, is it?
Markets are pricing in a 15% chance of no action, a small but not negligible chance and an 85% chance that the Fed will make a final 25 basis point hike.
But that’s what Asian markets will wake up to on Thursday. Before that on Wednesday they have the Malaysian interest rate decision, service PMI data from Australia and India and South Korean FX reserves to offer local direction.
Here are three key developments that could give markets more direction on Wednesday:
– Interest rate decision in Malaysia
– Services PMIs for India and Australia (April)
– Federal Reserve interest rate decision
By Jamie McGeever;
Our standards: The Thomson Reuters Trust Principles.
The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and freedom from bias under the Trust Principles.
Jamie McGeever
Comments are closed.