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.
Banks also slid in early European trading, although the declines were smaller than those seen in the previous session. The European Stoxx banking index was down 1.1 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.
Broader indices were steady, with the region-wide Stoxx 600 falling 0.1 per cent, the Germany’s Dax up 0.2 per cent and France’s CAC 40 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 Fed 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 Federal Reserve] 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 also steadier following a mammoth rally on Monday as investors bet that central banks would slow their monetary tightening plans.
Interest rates sensitive US two-year yields 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 also waiting for US inflation data on Tuesday that is expected to show persistent price pressures, potentially complicating the path for the Federal Reserve 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 also 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 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
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