Market Wrap: 24 March 2023

Market Wrap: 24 March 2023

Stocks Fluctuate as Bank Jitters Cast Long Shadow: 

  • Gauge of US banks fell to lowest since November 2020
  • Traders expect the Fed to slash rates later this year

A gauge of Asian equities was slightly lower in choppy trading Friday as the malaise hanging over the global banking sector damped appetite for risk taking in markets. The yen rallied.

Shares swung between gains and losses in Hong Kong, as did US futures, while contracts for Europe remained lower. Financials were among the worst-performing sectors on MSCI Inc.’s Asia-wide index. 

Despite the Nasdaq 100 pushing near to the threshold of a bull market Thursday, banking stocks missed out on the rally and a measure of US financial heavyweights sank to the lowest since November 2020. That tone carried over into Asia.

Treasury yields remained volatile and on course for a third day of declines while the dollar steadied after weakening in the previous six sessions as investors positioned for the Federal Reserve to slash interest rates later this year. Short-dated Treasuries posted outsized moves for an 11th straight trading day Thursday and fluctuated Friday. 

Traders remained wary of problems in the banking sector that have built up during the Fed’s rapid hiking cycle. The US lenders slumped even after Treasury Secretary Janet Yellen told lawmakers she was prepared for further steps to protect deposits if needed.

Government bond yields added to opening declines in Australia and New Zealand. Japan’s benchmark 10-year bond yield fell 1.5 basis points to 0.28%.

The yen rallied to the highest in six weeks on demand for haven assets amid concern over the health of global banking sector. Meanwhile, a measure of the nation’s inflation slowed for the first time in 13 months but gains in prices excluding fresh food and energy suggested stronger underlying inflationary pressures. This also supported the yen via market speculation that incoming BOJ Governor Kazuo Ueda may have to move toward policy normalization sooner rather than later.

“Japanese yen’s strong performance we believe is driven by the return of its safe haven appeal, especially given that we see that Japanese banks are in a relatively better standing,” said Alan Lau, a strategist at Malayan Banking Bhd in Singapore. “Overall, we are positive on the yen.”

Comments by Yellen about additional deposit actions, if warranted, offered investors comfort while they digested earlier rate hikes by the Bank of England, Norges Bank and Swiss National Bank, as well as hawkish comments by European Central Bank officials. 

Even so, investors remain on guard to the risk of the economy going into reverse. 

“We think that recession is a very likely prospect and that may very well turn the tables and see the Fed take a much more cautious approach, perhaps at the end of the year, opening the way for a rate cut,” Sue Trinh, co-head of global macro strategy at Manulife Investment Management, said on Bloomberg Radio. “Of course, the risk to that is that it takes longer for those cuts to manifest.”

Meanwhile, additional Tier 1 dollar notes issued by global lenders rebounded, climbing an average 2.7 cents on the dollar since Monday, according to data compiled by Bloomberg, which excludes Credit Suisse Group AG’s debt. They’re still down around 6 cents for all of March after the writedown of Credit Suisse’s AT1s.

In the commodity space, oil declined and pared a weekly gain on concerns that the refilling of the US’s strategic crude inventories would take longer than previously expected. Gold was little changed.


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