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Asia stocks shake off bank woes, China leads rally: markets wrap

Asia stocks shake off bank woes, China leads rally: markets wrap
JPMorgan Chase & Co headquarters in New York, US, on Wednesday, 18 January 2023. (Photo: Gabby Jones/Bloomberg)

Asian equities climbed on Wednesday as investors wagered that the worst of the global fallout from the American banking sector has passed.

Financials were among the biggest gainers in Tokyo and Hong Kong, where the Hang Seng Index rose more than 2%. US stocks rallied into the close on Tuesday, helping set the scene for the shift in sentiment in Asia. 

Traders were digesting a slew of economic data from China, where retail sales rose as much as estimated while factory output was fractionally lower than projected. The People’s Bank of China added more liquidity than expected while holding a key lending rate unchanged.  

A gauge of dollar strength fell slightly, extending its run of declines to a fifth day. The two-year Treasury yield was little changed following a 27 basis point recovery in the rate on Tuesday. It still remains well below levels of mid last week after its biggest three-day slump in decades. 

Japan’s 10-year yield rose while the 20-year rate surged 15.5 basis points after the central bank offered to buy fewer longer-dated bonds than planned in Wednesday’s operations. 

Swaps pricing is back to positioning for the Federal Reserve to lift rates by a quarter percentage point next week after the odds of an increase had slipped to nearly 50-50 on Monday. The closely-watched core consumer price index increased 0.5% in February, slightly ahead of the median estimate of 0.4% and enough to keep pressure on policy makers to hike rates. 

“Our view is inflation has peaked and the Fed will do one more rate hike of 25 basis points and that’s it,” Mark Matthews, Asia research head at Bank Julius Baer & Co, said on Bloomberg TV. 

He said the regulatory backstop following the collapse of Silicon Valley Bank was very important but wouldn’t necessarily end such incidents. “The ripple-through effect of the era of ultra-low interest rates and then Covid is still very much with us,” Matthews said.

Remarks from ratings companies on the financial sector underscored that sentiment is likely to remain fragile after the biggest American bank failures since the financial crisis. 

Moody’s Investors Service cut its outlook on the sector on the heels of the trio of banking collapses over the past few days. First Republic Bank triggered a volatility halt after S&P Global Ratings placed the company on watch negative. 

“Policymakers may still feel forced to press pause on rates, despite evidence the hot inflation is still a risk, unwilling to be blamed for making a bad situation worse,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown. “While smaller banks remain under pressure, there are concerns that bigger banks could become more risk averse in lending, which could dip the economy into a sharper downturn.”

Elsewhere in markets, oil rose from its lowest close in three months as traders took stock of the outlook for demand. BM/DM

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