Asia stocks drop on bank woes as traders await Fed: markets wrap
Shares in Asia fell on renewed concerns about the health of the banking sector and ahead of a Federal Reserve decision on Wednesday where policymakers are expected to add to their rate-hike cycle.
Shares slipped in Hong Kong, South Korea and Australia following losses in US equities on Tuesday. Markets are shut in Japan and mainland China for holidays.
US equity futures edged higher in Asia after a selloff in regional lenders sent the S&P 500 down 1.2% in New York. Financial and energy sectors were the worst performers. US regional lenders PacWest Bancorp and Western Alliance Bancorp both tumbled at least 15%, just a day after JPMorgan Chase & Co.’s acquisition of First Republic Bank seemed to bolster confidence in the sector.
The decline in energy stocks followed a 5.3% slide for the US oil price, the biggest decline since July, in a sign of unease about global growth. The decline stabilised early on Wednesday.
The New Zealand dollar gained versus all its G10 peers after better-than-expected jobs data. Australian and New Zealand’s government bonds rose, following Tuesday’s rally in Treasuries. The US two-year note yield slid 18 basis points to below 4%, and the 10-year yield had dropped 14 basis points to 3.42%.
US economic data pointed to a cooling of the labour market, with the number of job openings in March dropping to the lowest level in two years. The decline in available positions comes before the Fed’s rate decision where it is forecast to raise borrowing costs 25 basis points. Market pricing indicates the increase will mark the peak of the tightening cycle before weaker growth prompts the central bank to cut rates later in the year.
“Should the Fed offer any sort of tightening bias in its outlook – and overlook the financial stability risk – then the skew is very much in favour of a hawkish reaction,” Chris Weston, head of research at Pepperstone Group Ltd in Melbourne, wrote in a note. “We initially see US bond yields and the US dollar higher, with gold sellers in the mix.”
Following a hike this week, the Fed is then expected to signal a pause is coming in June, according to Tony Sycamore, a market analyst at IG Australia Pty in Sydney. “The Fed is unlikely to open the door to possible rate cuts this year which could have been the catalyst for another leg higher” for US equities, he said.
The lack of clarity regarding the US debt ceiling issue also added to the uncertain mood. Between now and 1 June — the date by which the Treasury Department could run out of sufficient cash — President Joe Biden and members of the House and Senate are scheduled to be in town at the same time for the sum total of one week to find a solution.
Advanced Micro Devices Inc., Ford Motor Co., and Starbucks Corp. all fell in after-hours trading after the companies reported earnings. AMD shares dropped 3.7% after it announced a lacklustre sales forecast. Starbucks slipped 5.6% in late trading after it reaffirmed its guidance for the full fiscal year, a cautious move that appeared to disappoint Wall Street.
In commodities, oil steadied in Asia after tumbling more than 5% on Tuesday and gold was little changed. BM/DM