Jamie McGeever provides an update on Asian markets for the day ahead.
Asia’s economic and policy data calendar is light this week, which is perhaps a good thing as investors have their eyes on another topic: the global banking crisis and what it means for the growth, markets and policies.
Some might object to recent events being called a “crisis,” but think about it: two of the top 25 US banks have collapsed; a global giant, Credit Suisse, was swallowed up; concerns about another bank, Deutsche Bank, are mounting; the Fed took emergency action and provided guarantees worth hundreds of billions of dollars.
Fears about deteriorating credit conditions are growing, despite swift and bold action by US and Swiss authorities. Fed and European Central Bank officials sounded the alarm on Sunday, echoing signals from across the private sector last week.
Such is the precarious backdrop of the last week of the quarter. Since the shutdown of Silicon Valley Bank by California regulators on March 10, there has been significant turbulence and volatility in interest rates and fixed income markets.
Asia will not be spared. If safe-haven buying and growing demand for dollar liquidity and collateral drives the dollar higher, economies in the region will come under pressure.
The weakening of national exchange rates increases pressures on prices, which puts the central banks with their backs to the wall: tighten their policies when growth slows down or let inflation rise? A stronger dollar also leads, all other things being equal, to a tightening of financial conditions.
Currency market volatility has been surprisingly low since the outbreak of the banking crisis. That may be about to change.
Banking stocks fell, but stocks in general, and the interest-rate sensitive technology sector in particular, held up better. More speculative parts of the investment universe, such as bitcoin and cryptocurrencies, significantly outperformed.
The Nasdaq has risen for two consecutive weeks and remains up 3% on the month, while bitcoin is up 35% since the SVB collapse.
How much longer can they defy gravity? If bond yields and implied rates fall because an impending credit crunch makes a recession much more likely, risk appetite should change accordingly.
Perhaps the Fed and other central banks can achieve the holy grail of a soft landing and take the seemingly contradictory steps of promoting financial stability and fighting inflation without further degrading the financial system. .
Maybe.
Trade figures from Hong Kong and Thailand are the main Asian data on Monday. Later in the week, Vietnamese GDP, a Thai interest rate decision, retail sales and unemployment in Japan are on the agenda, while preliminary PMI indices for March on the mainland – y understood China – begin to filter.
Here are three key events that could guide markets on Monday:
– Germany Ifo Index (March)
– Speech by M. Schnabel de la BCE
– BoE Governor Andrew Bailey speaks