Asian stocks were in retreat on a thin day of trading on Wednesday as worries over a US banking meltdown and expectations of another round of interest rate hikes dampened the mood on trading floors.
Tumbling regional bank stocks weighed on Wall Street, and oil was also left nursing large losses with fears that banks tightening up on lending along with a slowing job market were harbingers of a looming broader slowdown.
Japan’s Nikkei and China’s mainland markets were closed for the May Day holiday week, leaving Hong Kong as the major outlier.
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The benchmark Hang Seng fell, snapping a four-day winning streak, as investors remained concerned that a softening US economy and troubles in the country’s regional lenders could slow Asia’s growth.
That came as the International Monetary Fund (IMF) raised Asia’s economic forecast on Tuesday as China’s recovery underpinned growth, but warned of risks from global market volatility driven by Western banking sector woes.
The Hang Seng Index dropped 1.18%, or 234.65 points, to 19,699.16, while the Hang Seng China Enterprises Index fell 1.91%.
Elsewhere across the region, Seoul, Taipei, Mumbai, Wellington, Jakarta, Singapore, Kuala Lumpur and Manila were all down in early trade. MSCI’s broadest index of Asia-Pacific shares, outside of Japan, was down 1%.
Globally, bonds and gold held onto gains. S&P 500 futures edged up 0.1% and European futures rose 0.5% but the mood was cautious with banks in the crosshairs.
On Tuesday, US regionals were hammered, with PacWest Bancorp down 27.8%, Western Alliance Bancorp, down 15.1% and Comerica Inc down 12.4%.
After the failures of Silicon Valley Bank and Signature Bank in March, the collapse of First Republic over the weekend has confidence in smaller lenders flagging and investors more broadly bracing for banks to tighten up lending in response.
Credit Suisse Falldown
In Europe, where the crisis of confidence forced Credit Suisse into the arms of larger rival UBS six weeks ago, banks are sharply turning off the credit taps, data on Tuesday showed, perhaps making a case for a smaller rate hike this week.
“This reinforces the idea of 25bps from the ECB this week rather than 50bps,” said NatWest Markets’ rates strategist Jan Nevruzi. “And also plants the seed in our mind that if that is what happened in Europe, it could be much worse here in the US.”
Markets are all but certain the Federal Reserve will announce a 25 bp hike at 1800 GMT. If that happens, focus will be on whether or how hard Fed Chair Jerome Powell pushes back on investors’ expectations for rate cuts by year’s end.
Currency markets were steady and awaiting direction from the Fed, save for the New Zealand dollar which rose about 0.6% to a three-week high of $0.6242 after strong jobs data fuelled expectations of another rate hike later this month.
The Australian dollar has given back some of the ground gained on Tuesday, following a surprise rate hike from the central bank, and sat at $0.6664.
The euro nudged 0.2% higher to $1.1023, while the yen took a breather as Japan entered its ‘Golden Week’ holiday season, and rose about 0.4% to 136.02 per dollar. Brent crude, which dropped 5% overnight, sat at $75.29 a barrel.
Key figures
Tokyo – Nikkei 225 <> CLOSED
Hong Kong – Hang Seng Index < DOWN 1.18% at 19,699.16 (close)
Shanghai – Composite <> CLOSED
London – FTSE 100 > UP 0.26% at 7,793.51 (0931 GMT)
New York – Dow < DOWN 1.08% at 33,684.53 (Tuesday close)
- Reuters with additional editing by Sean O’Meara
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