An Asia-Pacific stocks index reached the highest level in more than two weeks, with energy and materials companies leading the way. The dollar edged lower versus its major peers and Treasury yields were little changed.

Japan’s Topix declined as traders there returned from national holidays, with a gauge of bank shares falling about 1%. 

In Australia, shares of Westpac Banking Corp. rose more than 2% after it reported first-half net profit that was slightly ahead of analyst estimates. Shares of Chinese banks also climbed after at least three nationwide lenders lowered deposit rates.

Contracts for US equities were little changed following a strong performance on Wall Street on Friday, when the S&P 500 halted its longest losing streak since February. The benchmark climbed 1.9% as US regional banks rebounded while the VIX volatility gauge snapped a four-day surge.

The Nasdaq 100 rose 2.1%, with strong earnings at Apple Inc. helping lift the mega cap tech space as the world’s most-valuable company climbed almost 5%. 

US jobs data last week showed hiring and worker pay gains accelerated in April in signs of labour-market resilience and inflationary pressures in the face of headwinds. The solid data has tempered fears of a US recession. 

The strong figures also increase chances the Federal Reserve will hold rates higher for longer and potentially keep the door open to an 11th straight hike in June.

Rates on swap contracts linked to Fed meetings — which on Thursday briefly priced in a cut in July — moved higher, to levels consistent with a stable policy rate until September — followed by at least two quarter-point cuts by year-end. 

Worries remain

Declines in Japanese financial stocks reflected rising interest rates, according to Michael Makdad, a senior analyst at Morningstar Inc. “In that sense, I think the weakest link in Asia is the Japanese banks,” including the nation’s regional banks and other unlisted lenders, he said.

Despite Friday’s stock rebound, investors still have much to worry about. The rout in US bank shares has the S&P 500 financials index on the verge of falling back below its 2007 peak. 

“More demand destruction has to happen, more breakage will be a consequence of it,” George Boubouras, head of research at K2 Asset Management, said of the Fed’s monetary policy impact on Bloomberg Radio. “The market will have a conniption and volatility spike for a few days here and there.”

Meanwhile, Treasury Secretary Janet Yellen sees “simply no good options” for solving the debt limit stalemate in Washington without Congress lifting the cap. She even cautioned that resorting to the 14th Amendment would provoke a constitutional crisis.

Investors will be awaiting the release this week of the core consumer price index, which excludes food and energy and is closely watched by the Fed. It is projected to show a 5.5% increase in April from a year ago. 

In Asia, attention will swing to China’s trade figures due in the first half of the week and inflation numbers set for release on Thursday.

Elsewhere in markets, oil ticked higher as investors assessed a complex outlook for global demand after a period of volatile trading. Gold was marginally higher. BM/DM