Shares of Japan’s biggest banks dropped sharply on Tuesday as global markets reacted to a US banking sector sell-off and uncertainty over interest rates in the wake of the collapse of Silicon Valley Bank.
Traders in Tokyo said they were expecting a second day of massive equity market support from the Bank of Japan to fend off a deeper rout. Japan’s Topix Banks index tumbled 7.4 per cent, its worst day in more than three years, while the Topix fell 2.7 per cent.
Shares of MUFG, Mizuho and SMFG fell between 7.1 per cent and 8.6 per cent. Asia stocks fell on Tuesday, dragged down by banks. South Korea’s Kospi was down 1.9 per cent. Hong Kong’s Hang Seng index shed 2.3 per cent while China’s CSI 300 declined 0.6 per cent.
US futures indicated a rebound for the regional banks hit hardest by Monday’s sell-off. Futures linked to First Republic Bank were up 20 per cent, following a 62 per cent fall in the previous session. Western Alliance Bank futures climbed 20 per cent after losing nearly half their value on Monday.
Banks in Europe also steadied in morning trading. The European Stoxx banking index was down 0.6 per cent after closing down 6.7 per cent on Monday, amid concerns over contagion from SVB’s failure and that measures to shore up the US financial system would not extend to Europe.
The region-wide Stoxx 600 fell 0.1 per cent, Germany’s Dax was up 0.2 per cent and France’s Cac 40 was flat. London’s FTSE 100 fell 0.5 per cent, after UK wage growth slowed to 5.7 per cent in the three months to January, down from 6 per cent in the previous period.
The collapse of SVB and ensuing turmoil in the banking system has raised expectations among investors and economists that the Federal Reserve might slow the pace of interest rate increases, sending Treasury yields down and providing some support to equities.
“I think today there is room for a rebound, it depends if the market believes the Federal Reserve will give in and stop hiking earlier,” said Francesco Pesole, a currency strategist at ING. “At this point they [the Fed] will need to take on board what has happened [to Silicon Valley Bank] because they can’t incur the risk of a repeat of anything else like that.”
Bond markets were steadier following a rally on Monday as investors bet that central banks would slow their monetary tightening plans.
The yields on US two-year Treasury notes, which are highly sensitive to interest rate changes, were up 0.13 percentage points at 4.15 per cent following their biggest one-day drop since 1987 on Monday.
The hit to Asian banking stocks came after investors dumped shares in a clutch of US regional lenders on Monday, despite pledges by President Joe Biden to do “whatever is needed” to protect depositors from the fallout of SVB’s implosion.
Investors are waiting for US inflation data on Tuesday that is expected to show persistent price pressures, potentially complicating the path for the Fed to decide on interest rates as it contends with three bank failures and concerns about financial stability.
At the weekend the Fed announced an emergency lending facility and guaranteed that all depositors in SVB and Signature Bank could retrieve their funds, while the UK government helped broker a deal for HSBC to purchase SVB’s local arm.
Despite the interventions US bank stocks plunged on Monday. The KBW Nasdaq Bank index fell 11.7 per cent in the US, with regional banks plummeting most sharply over concerns that smaller lenders could have more precarious balance sheets.
First Republic Bank fell 61.8 per cent, Western Alliance Bancorp lost 47.1 per cent and KeyCorp dropped 27.3 per cent.
In foreign exchange markets, the dollar index, which measures the greenback against six peer currencies, was up 0.3 per cent. The euro was down 0.3 per cent against the dollar, while sterling was down 0.2 per cent.
Brent crude, the international benchmark, fell 1.5 per cent to $79.54 a barrel, while WTI, the US equivalent, fell 1.7 per cent to $73.48 a barrel.
Additional reporting by Colby Smith in Washington