US equity futures rallied, the dollar tumbled and Treasury yields extended declines as investors dialed back rate-hike bets following the collapse of Silicon Valley Bank.
Contracts for the Nasdaq 100 surged around 2% and two-year yields slumped as much as 25 basis points Monday in Asia. Efforts by regulators to backstop bank deposits buoyed sentiment while the rapid onset of problems in the American financial sector supported bets for a less hawkish monetary policy.
Treasury Secretary Janet Yellen said the her office would protect “all depositors” at the bank, whose demise Friday marked the biggest such event since 2008. The government actions will also include a new lending program that Federal Reserve officials said would be big enough to protect uninsured deposits in the wider US banking system.
Economists at Goldman Sachs Group Inc. no longer expect an increase from the Fed at its March meeting given stresses in the banking system. Others, like equity strategist Frank Benzimra at Societe Generale SA, said the probability of a 50-basis-point hike this month has diminished greatly.
A gauge of dollar strength fell as much as 1%, with the currencies of Australia, New Zealand and Norway among the biggest advancers of the greenback’s major peers. There were also notable gains in the yen and the offshore yuan.
Japan’s benchmark 10-year yield slid further below the ceiling of the central bank’s target trading band. Australian and New Zealand government bond yields dropped as traders globally reassessed the path of interest rate hikes and the economic cost the tightening cycle has taken already. The problems at SVB Financial Group’s bank were caused in large part by the fallout from higher US interest rates.
A gauge of Asian stocks eked out a small rise, held back by losses in Japanese shares, with financials being the biggest drag on the benchmark Topix gauge. The index has been under pressure also thanks to strength in the yen.
Shares in Hong Kong and mainland China rose on positive signs for policy continuity, with China’s central bank governor Governor Yi Gang and the finance and commerce ministers being kept in their posts. President Xi Jinping pledged to pursue reasonable growth in the economy and self reliance in technology during his closing speech at the National People’s Congress.
Monday’s moves in markets come after risk assets got pummeled last week, with the US stock benchmark suffering its worst week since September. Wall Street’s so-called “fear gauge” spiked, with the Cboe Volatility Index hitting the highest this year.
“Tightening monetary cycles often end abruptly when ‘something breaks’ and a financial crisis is triggered,” Ed Yardeni, the founder of Yardeni Research, said in a note. “If the Silicon Valley Bank run is that something, it could mean tightening ends sooner and bond yields have peaked. We can’t say for sure that’s the case but can say the debacle should keep the tech sector mired in its rolling recession for longer.”
Anxiety is also running high ahead of this week’s consumer price index report, especially after Fed Chair Jerome Powell recently emphasized that a move to a faster pace of tightening would be based on the “totality of the data.”
Yet for now the reassurances from US regulators over SVB are having some of their desired impact.
“This will bring confidence back to the markets. But from the Fed’s point of view, there are additional dangers that need to be reviewed, which will take some time,” Carol Pepper of Pepper International said on Bloomberg Television. “So I’m hoping that this will help them to have a good reason to pause because frankly creating financial stability is the number one job at the Fed.”
Elsewhere in markets, oil fluctuated while gold rose on its allure as a haven. Bitcoin climbed, reflecting the relief among investors.
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:
- S&P 500 futures rose 1.7% as of 6:35 a.m. London time. The S&P 500 fell 1.5% on Friday
- Nasdaq 100 futures rose 1.9%. The Nasdaq 100 fell 1.4%
- Euro Stoxx 50 futures rose 0.4%
- Japan’s Topix index fell 1.5%
- Hong Kong’s Hang Seng Index rose 1.8%
- China’s Shanghai Composite Index rose 1%
- Australia’s S&P/ASX 200 Index fell 0.5%
- The Bloomberg Dollar Spot Index fell 0.7%
- The euro rose 0.7% to $1.0718
- The Japanese yen rose 0.5% to 134.38 per dollar
- The offshore yuan rose 0.7% to 6.8901 per dollar
- The Australian dollar rose 1.3% to $0.6664
- The British pound rose 0.7% to $1.2109
- Bitcoin rose 4.2% to $22,389.58
- Ether rose 3% to $1,603.45
- The yield on 10-year Treasuries declined two basis points to 3.68%
- Japan’s 10-year yield declined 10 basis points to 0.295%
- Australia’s 10-year yield declined six basis points to 3.52%
- West Texas Intermediate crude rose 0.2% to $76.87 a barrel
- Spot gold rose 0.6% to $1 878.83 an ounce