Asian stocks are volatile as banks face default pressure

  • Asian stock markets:
  • Nikkei rose 0.3%, S&P 500 and European futures rose
  • Eyes on Deutsche Bank, default swaps
  • Deposits flow into money market funds from banks

SYDNEY (Reuters) – Asian stocks suffered on Monday while US and European stock futures rose on hopes that authorities will act to reduce stress in the global banking system, even as the cost of insuring against default nears dangerous levels.

Nerves were helped by reports that First Citizens BancShares Inc (FCNCA.O) was in advanced talks to acquire Silicon Valley Bank (SIVB.O) from Federal Deposit Insurance Corp.

S&P 500 futures rose 0.3% and the Nasdaq 0.2%. Futures on the EUROSTOXX 50 rose 0.9% while futures on the FTSE Index rose 0.6%.

Japan’s Nikkei (.N225) rose 0.3%, but South Korea’s (.KS11) lost 0.5%. MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) fell 0.7%, led by a 0.5% drop in Chinese blue chips (.CSI300).

The mood remained sour after shares in Deutsche Bank (DBKGn.DE) fell 8.5% on Friday and the cost of insuring its bonds against default risk, along with credit default swaps (CDS) of several other banks, jumped sharply.

“The current level of credit default swaps for European banks is slightly lower than it was during the height of the European financial crisis in 2013,” said Naeem Aslam, chief investment officer at ZAY Capital Markets.

“If CDS are not normalized, it is very likely that the stock market will continue to suffer for several days.”

In the United States, depositors were fleeing smaller banks to their larger cousins ​​or to money market funds. Flows into money market funds rose by more than $300 billion last month to a record $5.1 trillion.

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Minneapolis Federal Reserve Bank President Neel Kashkari said Sunday that officials are watching “very closely” to see if banking pressures have led to a credit crunch that threatens to tip the economy into recession.

He added that this, in turn, meant that the Fed was closer to peak rates. Markets are well ahead of the central bank in pricing with about an 80% chance that rates will have already peaked, while a rate cut is seen for the first time in July.

Federal Reserve Governor Philip Jefferson speaks later Monday, while Federal Reserve Vice Chairman for Oversight Michael Barr testifies about “bank oversight” before the Senate on Tuesday.

The two-year Treasury yields are down an astounding 102 basis points so far this month to stand at 3.77%, while the entire yield curve to the 30-year is below the effective funds rate of 4.85%.

This decline has at times been a drag on the dollar, at least against the safe-haven Japanese yen as it stands at 130.85 yen, after touching a seven-week low of 129.65 last week.

The euro suffered a reversal on Friday amid concerns about Deutsche, last at $1.0764 and below last week’s high of $1.0930.

The drop in yields was coupled with the move from risk-on to polished gold, which was trading at $1,975 an ounce after hitting a high above $2,009 last week.

Oil prices fell again and are processing losses of nearly 10% for the month as concerns about global growth undercut commodities in general.

Brent crude fell 14 cents to $74.85 a barrel, while US crude fell 10 cents to $69.16 a barrel.

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Reporting from Wayne Cole. Editing by Sam Holmes and Jacqueline Wong

Our standards: Thomson Reuters Trust Principles.

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