On Monday, Asian equities fell as U.S. and European stock futures rose on expectations that regulators were attempting to ring-fence stress in the global banking system, even as the cost of insuring against failure approached perilous levels.
Reports that First Citizens BancShares Inc. was in advanced discussions to purchase Silicon Valley Bank from the Federal Deposit Insurance Corp. calmed fears.
S&P 500 futures rose 0.3%, while Nasdaq futures rose 0.2%. The EUROSTOXX 50 futures rose 0.9%, while the FTSE futures rose 0.6%.
South Korea’s stock market dropped 0.5% while Japan’s Nikkei gained 0.3%. MSCI’s broadest index of Asia-Pacific equities outside Japan is down 0.7%, with Chinese blue chips falling 0.5%.
The atmosphere remained tense after Deutsche Bank’s shares plummeted 8.5% on Friday, and the cost of insuring its bonds against failure increased dramatically, as did the CDS of several other banks.
Depositors in the United States have been leaving tiny banks in favour of bigger counterparts or money market funds. Flows into money market funds have increased by more than $300 billion in the last month, reaching a new high of $5.1 trillion.
Minneapolis Fed President Neel Kashkari said on Sunday that policymakers were looking “very, very carefully” to see whether the financial stress had resulted in a credit constraint, which might have pushed the economy into recession.
It showed the Fed was getting closer to a rate peak, he noted. Markets are putting in an 80% possibility that interest rates have already peaked, with the first rate decrease expected as early as July.
Fed Governor Philip Jefferson will speak later on Monday, while Fed Vice Chair for Supervision Michael Barr will testify before the Senate on “bank oversight” on Tuesday.
Two-year Treasury rates have decreased 102 basis points this month to 3.77%, while the whole yield curve out to 30 years is below the 4.85% effective funds rate.
The drop has sometimes weighed on the dollar, at least versus the safe-haven Japanese yen, which is now trading at 130.85 yen after hitting a seven-week low of 129.65 last week.
The euro had its own reverse on Friday as a result of the concerns over Deutsche, and it was last trading at $1.0764, significantly below last week’s high of $1.0930.
The reduction in yields, along with the flight from risk, has pushed gold to $1,975 per ounce, down from a peak of over $2,009 last week. [GOL/]
Oil prices fell again, with losses of over 10% for the month as concerns about global growth damaged commodities in general. [O/R]
Brent oil dropped 14 cents to $74.85 per barrel, while US crude slid 10 cents to $69.16 per barrel.