Asia stocks fall amid turmoil; Japan yield drops: Markets wrap

Asian equities extended declines Tuesday, led by weakness in financial stocks as the collapse of Silicon Valley Bank continued to reverberate across global markets.

A gauge of Asian shares tumbled about 2% and erased all of its gains for this year. Financial stocks were the biggest drag as investors weigh risks in the sector. The KBW Bank Index on Monday logged its biggest fall since the start of the Covid-19 pandemic, underscoring the dangers.

The two-year Treasury yield rebounded more than 15 basis points but remained markedly lower than levels late last week. It recorded the largest three-day retreat since Black Monday of October 1987 at the close of US trading.

Japan’s 10-year government bond yield fell below 0.25%, the Bank of Japan’s previous ceiling, amid bets that the US banking turmoil could slow the pace of global rate hikes and ease pressure on Japan to tighten. Yields on New Zealand’s two-year government bond tumbled more than 20 basis points, as did the rate on Australia’s three-year maturity. Japan’s five-year yield declined to the lowest since December.

A gauge of dollar strength edged higher after erasing its gains for the year on Monday amid a reassessment of the outlook for interest rates.

Swaps traders are now pricing a less than 60% chance the Federal Reserve will hike by another quarter percentage-point later this month.

“A policy mistake is hands down the biggest risk in the market,” Mary Manning, global portfolio manager for Alphinity Investment Management, said on Bloomberg Television. “Controlling inflation but also addressing the fact there is some instability in the banking system is difficult.”

Goldman Sachs Group Inc. economists as well as asset managers at the world’s largest actively managed bond fund from Pacific Investment Management Co. said the Fed could take a breather on the policy rate following the collapse of SVB. Nomura economists took it one step further, saying the Fed could cut its target rate next week.

Key data

Traders are looking to the US consumer price index report later in the day for cues that may trigger further shifts in bets on the Fed’s next move.

“If this CPI print within the next 24 hours is in line with consensus or no worse than consensus then market sentiment can calm, but if we get a strong number, all bets are off the table,” Andrew Ticehurst, senior economist and rates strategist for Nomura Australia Ltd., said on Bloomberg Television. “That would put the Fed in a really difficult position because the data would say you need to hike and we’ve got financial stability risks pointing the other way.”

The S&P 500 closed Monday down 0.2%, after bouncing between gains and losses amid a rout in bank shares while the policy-sensitive Nasdaq climbed 0.8%, the most in over a week. The fallout from SVB’s collapse prompted President Joe Biden to promise stronger regulation of US lenders, while reassuring depositors that their money is safe.

Oil extended a decline ahead of the inflation data as the biggest US bank collapse since 2008 continued to ripple through financial markets, while Asian energy shares fell. Gold slid after rising in the three previous sessions as traders turned to haven assets.

Key events this week:

• US inflation, Tuesday
• China retail sales, industrial production, medium-term lending, surveyed jobless rate, Wednesday
• Eurozone industrial production, Wednesday
• US business inventories, retail sales, PPI, empire manufacturing, Wednesday
• Eurozone rate decision, Thursday
• US housing starts, initial jobless claims, Thursday
• Janet Yellen appears before the Senate Finance Committee, Thursday
• US University of Michigan consumer sentiment, industrial production, Conference Board leading index, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures rose 0.5% as of 1:52 p.m. Tokyo time. The S&P 500 fell 0.2% Monday
• Nasdaq 100 futures rose 0.4%. The Nasdaq 100 rose 0.8%
• Japan’s Topix index fell 2.5%
• Hong Kong’s Hang Seng Index fell 1.8%
• China’s Shanghai Composite Index fell 0.9%
• Australia’s S&P/ASX 200 Index fell 1.6%

Currencies

• The Bloomberg Dollar Spot Index rose 0.2%
• The euro fell 0.3% to $1.0699
• The Japanese yen fell 0.6% to 134.02 per dollar
• The offshore yuan fell 0.3% to 6.8740 per dollar
• The Australian dollar fell 0.4% to $0.6640

Cryptocurrencies

• Bitcoin rose 1% to $24,487.47
• Ether rose 0.6% to $1,681.45

Bonds

• The yield on 10-year Treasuries was little changed at 3.57%
• Japan’s 10-year yield declined 5.5 basis points to 0.240%
• Australia’s 10-year yield declined nine basis points to 3.43%

Commodities

• West Texas Intermediate crude fell 1.2% to $73.93 a barrel
• Spot gold fell 0.6% to $1 901.80 an ounce