Mar 27 (Reuters) – A look at the day ahead in Asian markets by Jamie McGeever.
Asia’s economic data and political calendar is light this week, which is perhaps just as well because investors’ focus is firmly on something else – the global banking crisis and its implications for growth, markets and politics.
Some may object to recent events being labeled a “crisis,” but consider this: two of America’s 25 largest banks have collapsed; a global giant, Credit Suisse, was swallowed up; concerns about another, Deutsche Bank, are increasing; The Fed has taken emergency measures and provided hundreds of billions of dollars worth of backstops.
Fears over deteriorating credit conditions are mounting despite swift and bold action by US and Swiss authorities. Fed and European Central Bank officials hoisted the warning flags on Sunday, echoing echoes across the private sector over the past week.
This is the precarious background for the last week of the quarter. Since the shutdown of Silicon Valley Bank by California regulators on March 10, turbulence and volatility in interest rate and bond markets has been severe.
Asia will not be immune. As safe-haven buying and rising demand for dollar liquidity and collateral push the dollar higher, economies in the region will come under pressure.
Weakening domestic exchange rates are increasing price pressures and cornering central banks – tighten policy as growth slows or let inflation rise? A stronger dollar, all other things being equal, will also tighten financial conditions.
Since the outbreak of the banking crisis, volatility on the currency markets has been surprisingly subdued. Maybe that’s about to change.
Large-cap banks have underperformed regional ones over the past year
Bank stocks have fallen, but stocks in general, and the interest-rate-sensitive tech sector in particular, have held up better. More speculative corners of the investment universe, such as bitcoin and cryptocurrencies, have clearly outperformed.
The Nasdaq is up for two straight weeks and is still up 3% this month, while Bitcoin is up 35% since SVB collapsed.
diagram
How much longer can they defy gravity? If bond yields and implied rates collapse because a looming credit crunch makes a recession much more likely, risk appetite is likely to shift accordingly.
Perhaps the Fed and other central banks can achieve the holy grail of a soft landing and take the seemingly contradictory policy steps of promoting financial stability and fighting inflation without further disruption in the financial system.
Possibly.
Trade numbers from Hong Kong and Thailand are the key Asian data points on Monday. Later in the week, Vietnamese GDP, a Thai interest rate decision, Japanese retail sales and unemployment are on the agenda as preliminary March PMIs trickle in across the continent – including China.
Here are three key developments that could give markets more direction on Monday:
– Germany ifo Index (March)
– Schnabel from the ECB speaks
– Highlight of BoE Governor Andrew Bailey
By Jamie McGeever; Editing by Diane Craft
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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
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