SINGAPORE – Asian stocks fell for a second session in a row on Wednesday, as global investors contended with signs of a softening US economy, and were in full flight from US regional lenders, ahead of an expected US interest rate hike later in the day.
Trade was thinned by holidays in China and Japan, though markets in Hong Kong were open and MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.7 percent.
Overnight, tumbling regional bank stocks dragged the S&P 500 down 1.2 percent and oil dived more than 5 percent on fears that shaky bank confidence and signs of weakness in the US job market were harbingers of a looming broader slowdown.
Bonds rallied as investors reckoned the Federal Reserve, which sets policy later on Wednesday, will soon be switching from rate hikes to cuts. The dollar, which fell a little, was caught in the crosswinds of falling yields and rising nerves.
Gold jumped nearly 2 percent to a three-week high above $2,000 an ounce.
Among banks, PacWest Bancorp, down 27.8 percent, Western Alliance Bancorp, down 15.1 percent, and Comerica Inc. down 12.4 percent, were the biggest losers.
“Short sellers, it seems, have gone to town, and as any equity trader will attest, when you know there is a wall of sellers out there, you stand aside,” said Chris Weston, head of research at brokerage Pepperstone in Melbourne.
After the failures of Silicon Valley Bank and Signature Bank in March, the collapse of First Republic over the weekend has confidence in smaller lenders flagging and investors more broadly bracing for banks to tighten up lending in response.
In Europe, where the crisis of confidence forced Credit Suisse into the arms of larger rival UBS six weeks ago, banks are sharply turning off the credit taps, data on Tuesday showed, perhaps making a case for a smaller rate hike this week.
“This reinforces the idea of 25bps from the ECB this week rather than 50bps,” said NatWest Markets’ rates strategist Jan Nevruzi. “And also plants the seed in our mind that if that is what happened in Europe, it could be much worse here in the US”
Markets are all but certain the Federal Reserve will announce a 25 bp hike at 1800 GMT. If that happens, focus will be on whether or how hard Fed Chair Jerome Powell pushes back on investors’ expectations for rate cuts by year’s end. – Reuters