Global Markets Report - 17 March

Australia

Shares in Australia are set to rise today following gains on Wall Street. Reports indicated that large US banks may come to the rescue of First Republic Bank to avert a massive liquidity crisis. Meanwhile, the European Central Bank raised interest rates by 0.50% and US jobless claims revealed lower unemployment than expected.

ASX futures were 22 points or 0.31% higher as of 7:00am on Friday, pointing to an incline at the open.

US stocks climbed Thursday, reversing their morning declines, on reports that the nation's biggest banks are discussing a joint rescue of First Republic Bank.

The S&P 500 added 1.8%, erasing an earlier decline of 0.7%. The Dow Jones Industrial Average gained 1.2%, or about 372 points, while the Nasdaq Composite advanced 2.5%.

Stocks have come under pressure in recent days after the collapse of Silicon Valley Bank spurred concerns about the broader banking sector. The Wall Street Journal reported that JPMorgan Chase, Citigroup, Bank of America and Wells Fargo, among other banks, are in talks to deposit billions of dollars of their own money into First Republic.

First Republic shares rose 10% after falling as much as 36% earlier in the day; the stock is still down more than 70% in March. The San Francisco-based bank was downgraded to junk status Wednesday by both S&P Global and Fitch. Both ratings companies pointed to the risk of deposit outflows.

The banking system worries have spread to Europe, with Credit Suisse at the center of a bank stock selloff. Credit Suisse said it would borrow up to $53.7 billion from the Swiss central bank to pre-emptively strengthen its liquidity position. That move eased some concern, investors said, with Credit Suisse shares jumping 19% on Thursday.

In commodity markets, Brent crude oil added 1.4% to $US74.75 a barrel while gold inched up 0.1% to US$1,920.01.

Australian government bond yields dropped, as the 2 Year plunged to 2.86% and the 10 Year dipped to 3.33%. Yields on US Treasury notes were also lower, with the 2 Year declining to 4.14% and the 10 Year slipping to 3.54%.

The Australian dollar climbed to 66.50 US cents from its previous close of 66.18. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies, dipped to 97.49.

Asia

Chinese shares ended lower as the Credit Suisse turmoil stoked fears of financial contagion. The benchmark Shanghai Composite Index dropped 1.1% to 3226.89 while both the Shenzhen Composite Index and the ChiNext Price Index were 1.5% lower. Most stocks dropped with energy companies and chip makers leading the losers. PetroChina lost 3.0% and NAURA Technology Group was down 1.8%. The banking sector was among the few bright spots, as the Bank of China rose 2.95% and Industrial & Commercial Bank of China added 1.35%.

Hong Kong's benchmark Hang Seng Index ended 1.7% lower at 19203.91, as negative sentiment weighed on global shares following recent banking turmoil. Baidu was the index's biggest loser, dropping 6.4% as it limited the demonstration of its AI chatbot to pre-recorded videos. Shares of other tech companies were also lower, with JD.com dropping 2.6% and Tencent Holdings 2.5% lower. Financial stocks were mixed as AIA Group declined 5.1% but Bank of China edged 0.7% higher. China's banking sector appeared immune from external volatility thanks to its high-quality assets and strong government support.

Japanese stocks ended lower amid further concerns about the financial sector. Dai-ichi Life Holdings fell 6.2% and Sumitomo Mitsui Trust Holdings dropped 6.3% as government bond yields slid. The Nikkei Stock Average fell 0.8% to 27010.61. Investors remained focused on any fallout following the collapse of Silicon Valley Bank, as well as the European Central Bank's policy decision due later Thursday.

India's benchmark Sensex index closed 0.1% higher at 57634.84, as gains in consumer-related stocks helped offset the impact of continuing banking sector concerns. Among consumer-related shares, Nestle India added 2.5% and Hindustan Unilever climbed 2.2%. Other gainers included Titan Co., which advanced 2.2%. Tata Steel was among the decliners, ending 3.3% lower.

Europe

European stocks rose after the European Central Bank raised interest rates and US unemployment data came in lower than expected. The pan-European Stoxx Europe 600 gained 1.3%, the German DAX added 1.6% and the French CAC 40 advanced 2%. The FTSE 100 index of the United Kingdom closed up 0.9%.

US initial jobless claims fell 20,000 to a seasonally adjusted 192,000 last week, compared to an expected 205,000. Meanwhile, the ECB raised eurozone interest rates by 50 basis points to 3%. Still, ECB comments were more dovish than expected, Algebris Investments said.

"The central bank isn't committing to more hikes and now favors a meeting-by-meeting approach," Algebris co-portfolio manager Gabriele Foa wrote, adding that the ECB highlighted robust liquidity support, which is in place should the financial system face pressure.

North America

US stocks climbed Thursday, reversing their morning declines, on reports that the nation's biggest banks are discussing a joint rescue of First Republic Bank.

The S&P 500 added 1.8%, erasing an earlier decline of 0.7%. The Dow Jones Industrial Average gained 1.2%, or about 372 points, while the Nasdaq Composite advanced 2.5%.

Stocks have come under pressure in recent days after the collapse of Silicon Valley Bank spurred concerns about the broader banking sector. The Wall Street Journal reported that JPMorgan Chase, Citigroup, Bank of America and Wells Fargo, among other banks, are in talks to deposit billions of dollars of their own money into First Republic.

First Republic shares rose 10% after falling as much as 36% earlier in the day; the stock is still down more than 70% in March. The San Francisco-based bank was downgraded to junk status Wednesday by both S&P Global and Fitch. Both ratings companies pointed to the risk of deposit outflows.

The banking system worries have spread to Europe, with Credit Suisse at the center of a bank stock selloff. Credit Suisse said it would borrow up to $53.7 billion from the Swiss central bank to pre-emptively strengthen its liquidity position. That move eased some concern, investors said, with Credit Suisse shares jumping 19% Thursday.

"This reiterates that both in the US and in Europe, regulators are going to be pretty quick to step in, first with SVB and now with Credit Suisse," said John Roe, head of multi-asset funds at Legal & General Investment Management. "It's a reminder that when things start to go wrong, central banks are all over it trying to stop it from getting out of control."

Jerry Braakman, president and chief investment officer of First American Trust, said he expects bigger banks to emerge as one of the beneficiaries from this crisis. Depositors are already moving money out of regional banks to national banks, which can help shore up liquidity for the latter.

"The money has to flow somewhere," said Mr. Braakman, who owns shares of JPMorgan Chase and Citigroup. He said he expects those companies to outperform the broader financial sector.

In a surprise move Thursday, the European Central Bank raised interest rates by a half percentage point. Many investors had been betting that the ECB might unveil a smaller, quarter-point rate increase.

In the US, federal-funds futures point to an 80% chance that the Federal Reserve will raise interest rates by a quarter-percentage point next week. A week ago, wagers reflected only a one-third odds of such an increase, seeing a larger half-percentage point raise as more likely.

"Markets are very uncertain about what the path is going to be for central bank policy. On the one hand, inflation remains very elevated. On the other hand, these issues in the banking market are a sign that higher interest rates do have costs," said Kiran Ganesh, a multi-asset strategist at UBS Global Wealth Management.

The latest data on weekly jobless claims came in at 192,000, a slight decline from the week before and below economists' expectations.

One bright spot has been tech stocks, which have remained relatively insulated from the turmoil rattling financial markets. The rise in tech stocks has coincided with a plunge in government bond yields and hopes that the Fed is nearing the end of its campaign of raising interest rates. Low yields make many investors willing to pay more for shares of tech companies that they expect to churn out outsize profits in the future.

Among individual stocks, social media company Snap climbed 7.3% after the Biden administration threatened a possible US ban of TikTok, a competitor video-sharing app.

Software firm Adobe rose 5.9% after it reported better-than-expected quarterly revenue and raised guidance for some of its full-year targets. FedEx is scheduled to report earnings after markets close.