Asia stocks bounce gingerly but bank fears lurk; Singapore index up 1.1%

SINGAPORE – Asian stocks were lifted from lows on Tuesday, with the

rescue of Credit Suisse

stemming selling in bank shares, although the mood was fragile and the stress in markets had traders wondering whether US rate hikes might be finished.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.5 per cent in early trade. Australian shares bounced 1.3 per cent from Monday’s four-month trough and the Hang Seng Index opened 0.7 per cent higher.

Singapore’s Straits Times Index jumped 1.1 per cent as at 9.48am. DBS Bank rose 0.5 per cent to $32.11, while OCBC Bank advanced 0.1 per cent to $12.22 and UOB added 0.4 per cent to $28.61.

Japanese markets were closed for a holiday, although Chicago-traded Nikkei futures were in the green.

Overnight, an early sell-off in Europe was reversed and on Wall Street, the S&P 500 rose 0.9 per cent. US futures rose 0.2 per cent in early Asia trade.

Most riskier dollar bonds sold by banks in the Asia-Pacific region rebounded early on Tuesday after a rout triggered by the wipeout in Credit Suisse’s additional tier 1 (AT1) debt a day earlier.

More than half of 50 AT1 bonds issued by banks in the region gained as at 9.26am in Hong Kong, with Westpac Banking’s perpetual notes rising 4.4 cents against the dollar to 82.6 cents, the most since early 2020, according to prices compiled by Bloomberg.

Australia & New Zealand Banking Group’s perpetual note advanced nearly 4.6 cents to 94.6 cents per dollar and perpetual debt of the Bank of East Asia rose 1.1 cents, rebounding from a record daily drop.

“Globally, I think we are a long way from being out of the woods on this,” Jefferies banking analyst Brian Johnson said, with the present stress set against a backdrop of higher capital costs and declining loan growth.

San Francisco lender First Republic seems to be a case in point. Its share price halved on Monday on worries that US$30 billion (S$40 billion) in deposits posted by bigger banks less than a week earlier would not be enough to shore up its stability.

The write-down of Credit Suisse’s AT1 debt to zero also set off frantic selling of similar debts at other banks because holders were surprised that the longstanding practice of paying creditors before shareholders was not fully followed.

This somewhat abated after regulators in Europe and Britain stepped in to reassure investors that it would not set a precedent.

A London-listed exchange-traded fund that tracks such debts pared steeper losses to finish 5.7 per cent lower on Monday, but nerves – and higher funding costs for banks – will likely linger.

“This remains a significant breakdown in how the credit stack works,” Mr Johnson said.

In foreign exchange markets, the United States dollar steadied after slipping overnight. It last bought 131.90 yen and held at US$1.0718 per euro. Bond markets whipsawed overnight as traders sought to figure out what the bank stress meant for rates policy.

A holiday in Tokyo left Treasuries untraded in Asia.

Central bank meetings in Britain and the US are scheduled this week, with the Federal Reserve first up on Wednesday.

US interest rate futures have priced in just one more 25 basis-point hike before a series of cuts beginning as soon as June. The CME FedWatch tool shows pricing implying about a 74 per cent chance of a rate hike on Wednesday.

“The banking sector’s near-death experience over the last two weeks is likely to make Fed officials more measured in their stance on the pace of hikes,” said Mr Steve Englander, head of Group of 10 currency research at Standard Chartered Bank.

“If the (Fed) pauses, the message may be that it sees further hikes as markets settle down. But the reality may be that a March pause effectively ends the hiking cycle if the economy slows.”

In commodity markets, demand jitters had Brent crude futures pinned below US$80 a barrel; they were last at US$73.80. Gold hit a one-year high of US$2,009 an ounce overnight, before easing to US$1,979 on Tuesday. REUTERS, BLOOMBERG