Contracts for European equities fell and Asian shares edged lower Friday as the malaise hanging over the global banking sector damped risk taking in markets. The yen rallied.
Euro Stoxx 50 futures declined around 0.7%, while a gauge of Asian shares slid after earlier swings between gains and losses. Financials were among the worst-performing sectors on MSCI Inc.’s Asia-wide index. US stock futures held small gains.
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 fell and were 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 the yields were broadly lower 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.
Australia and New Zealand government bond yields declined and Japan’s benchmark 10-year bond yield fell 1.5 basis points to 0.28%.
The yen advanced 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 normalisation sooner rather than later.
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 was steady and headed for a weekly gain amid concerns that the refilling of the US’s strategic crude inventories would take longer than previously expected. Gold was slightly lower.
Key events this week:
- Eurozone S&P Global Eurozone Manufacturing PMI, S&P Global Eurozone Services PMI, Friday
- US durable goods, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures rose 0.2% as of 6:50 a.m. London time. The S&P 500 rose 0.3%
- Nasdaq 100 futures rose 0.1%. The Nasdaq 100 rose 1.3%
- Euro Stoxx 50 futures fell 0.7%
- Japan’s Topix index fell 0.1%
- Hong Kong’s Hang Seng Index fell 0.9%
- China’s Shanghai Composite Index fell 0.7%
- Australia’s S&P/ASX 200 Index fell 0.2%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.0832
- The Japanese yen rose 0.4% to 130.34 per dollar
- The offshore yuan fell 0.3% to 6.8472 per dollar
- The Australian dollar rose 0.1% to $0.6691
- The British pound was little changed at $1.2280
Cryptocurrencies
- Bitcoin fell 0.1% to $28,304.24
- Ether fell 0.2% to $1,815.95
Bonds
- The yield on 10-year Treasuries declined three basis points to 3.39%
- Japan’s 10-year yield declined 1.5 basis points to 0.28%
- Australia’s 10-year yield declined seven basis points to 3.22%
Commodities
- West Texas Intermediate crude rose 0.1% to $70.05 a barrel
- Spot gold fell 0.3% to $1 988.14 an ounce
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