Hong Kong-Asian markets bounced Tuesday from the previous day’s rout, with lenders boosted by easing concerns of another financial crisis, while focus turned to the Federal Reserve’s policy decision later in the week.
The panic that characterised trade over the past 11 days appeared to have faded after authorities in leading economies pledged support for depositors and troubled banks following the collapse of Silicon Valley Bank and Signature Bank in the United States. Still, the takeover of troubled Credit Suisse by UBS for $3.25 billion fanned concerns about what could be next on the chopping block, and analysts warned it was too early to say that the crisis was over.
The move to save Credit Suisse aimed to prevent a wider crisis as it is among the 30 global banks considered “too big to fail”. All three main indexes on Wall Street ended on the front foot— with the Dow more than one percent up— while European markets were also comfortably higher, helped by promises of support from the Fed and other central banks as well as the saving of Credit Suisse. However, embattled First Republic Bank collapsed almost 50 percent, despite a coalition of US lenders saying they would inject $30 billion into it. There was also less concern over high-risk debt markets as holders of such bonds at Credit Suisse, known as AT1s, will lose $17.3 billion after authorities required that they be written off.
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The upheaval in the banking sector has led traders to re-evaluate their bets on the Fed’s interest rate plans, with speculation swirling that it will even cut rates by the end of the year to provide some stability, despite still-elevated inflation. Before the crisis kicked off, expectations were for borrowing costs to go as high as six percent but now forecasts are for them to end at around four percent. They are currently at 4.5-4.75 percent, and there is much talk about whether the US central bank holds fire at its Wednesday decision or lifts rates by 25 basis points.