SYDNEY: Asian shares followed US stock futures higher on Monday (Mar 27) on hopes authorities were working to ring-fence stress in the global banking system, even as the cost of insuring against default neared dangerous levels.
Helping nerves were reports First Citizens BancShares was in advanced talks to acquire Silicon Valley Bank from the Federal Deposit Insurance.
S&P 500 futures firmed 0.5 per cent in early trade while Nasdaq futures added 0.4 per cent.
MSCI’s broadest index of Asia-Pacific shares outside Japan edged up 0.1 per cent, with trading cautious. Japan’s Nikkei gained 0.1 per cent and South Korea 0.2 per cent.
The mood remained jittery after shares in Deutsche Bank fell 8.5 per cent on Friday and the cost of insuring its bonds against the risk of default jumped sharply, along with the credit default swaps (CDS) of many other banks.
“The current level of credit default swaps for European banks is just a little lower than it was during the height of the European financial crisis in 2013,” noted Naeem Aslam Chief Investment Officer at Zaye Capital Markets.
“If these CDS do not normalise, it is highly likely stock market may continue to suffer for many days.”
Over in the United States, depositors have been fleeing smaller banks for their larger cousins or to money market funds. Flows to money market funds have risen by more than US$300 billion in the past month to a record atop US$5.1 trillion.
Minneapolis Fed President Neel Kashkari on Sunday said officials were watching “very, very closely” to see if the banking stress led to a credit crunch that threatened to tip the economy into recession.
That, in turn, meant the Fed was closer to a peak in rates, he added. Markets are well ahead of the central bank in pricing around an 80 per cent chance rates have already peaked, while a first-rate cut is seen as early as July.
Fed Governor Philip Jefferson speaks later on Monday, while Fed Vice Chair for Supervision Michael Barr testifies on “Bank Oversight” before the Senate on Tuesday.
Yields on two-year Treasuries have fallen an astonishing 102 basis points so far this month to stand at 3.77 per cent, while the entire yields curve out to 30 years is below the 4.85 per cent effective funds rate.
That dive has sometimes been a drag on the dollar, at least against the safe-haven Japanese yen where it stands at 130.85 yen, having touched a seven-week low of 129.65 last week.
The euro suffered its own reversal on Friday amid the worries over Deutsche, and it was last at US$1.0767 and well off last week’s US$1.0930 top.
The drop in yields has combined with the run from risk to burnish gold, which was trading at US$1,975 an ounce after reaching a high above US$2,009 last week.
Oil prices were steadier early Monday, but are still nursing losses of almost 10 per cent for the month as worries about global growth undermine commodities in general.
Brent added 43 cents to US$75.42 a barrel, while U.S. crude rose 47 cents to US$69.73 per barrel.
