Asia stocks gain on bank rescue; bond yields climb: markets wrap

Indexes rose in Hong Kong, Japan and South Korea amid a rebound in banking shares. Baidu added to the positive sentiment after brokerages tested its just-unveiled ChatGPT-like service and granted it their preliminary approval. Technology stocks surged and were among the best performers on Friday.

Even so, an Asia equity gauge was set for a second weekly loss after the recent turbulence in the banking sector.

Contracts for the Euro Stoxx 50 index gained while S&P 500 and Nasdaq 100 futures were little changed. The S&P 500 notched its largest one-day advance since January on Thursday after the biggest US lenders agreed to contribute $30-billion in deposits to First Republic, easing speculation that the bank could be the next to fail after two high-profile demises touched off the crisis last week. 

Bond yields climbed about 19 basis points for Australia’s policy-sensitive three-year maturity and were also higher in New Zealand on Friday. The two-year Treasury yield rose about four basis points Friday following a 27 basis point jump to above 4% in the previous session. Traders who on Wednesday had largely abandoned bets for a ninth Fed rate hike next week upgraded the odds of a quarter-point move back to around 80%. 

The dollar weakened against all of its Group-of-10 counterparts, with the Australian and New Zealand currencies leading gains. 

Markets were also digesting a 50 basis points rate hike by the European Central Bank and comments from the ECB president that inflation is projected to remain too high for too long. The ECB rate hike added to bets the US central bank will also raise next week.

Friday’s quarterly triple witching, where contracts for index futures, equity index options and stock options all expire, could amp up swings in trading.

The First Republic news came after a lifeline from Swiss regulators earlier this week stabilized Credit Suisse Group AG, easing worries that troubles at the European lender would lead to a cascading crisis in that region.

The idea of a forced combination with a larger rival, UBS Group AG, was shot down on Thursday and receipts in Credit Suisse ended the session unchanged. The cost to insure the Swiss bank’s debt has been rising.

Inflation, not the banking rout in the US, will dictate the Federal Reserve’s future path, according to Dan Fineman, co-head of Asia Pacific equity strategy at Credit Suisse. “It will keep rates high until next year,” he said on Bloomberg Television.

Similarly, BlackRock Investment Institute does not expect cracks in the financial sector to deter central banks from raising rates further to contain inflation. It expects both the ECB and the Fed to “go as far as possible to distinguish their inflation fighting campaigns from measures to deal with bank troubles and safeguard the financial system”, a team of BlackRock analysts wrote in a note.

In China, some brokers resumed bond-pricing feeds on certain bond information platforms on Friday morning, after an abrupt suspension earlier this week disrupted trading in the $21-trillion market.

Bitcoin rose to near the highest level since June amid a broad rally in cryptocurrencies. Other tokens such as Ether, Solana and Polkadot surged as well.

Elsewhere, oil advanced but was still headed for the worst week so far this year after the recent turmoil in the financial sector. Gold rose. BM/DM