ASX rebounds on Wall Street surge
By Colin Kruger
The ASX 200 staged a modest bounce this morning in response to a Wall Street rallied on news that major players in the financial sector were stepping in to help stabilise the sector after a week of turmoil.
The ASX 200 was up 0.3 per cent in early trade on – 24 points higher at 6989.5 – with tech, energy and banking stock leading the gains with these sectors up more than 1 per cent. This follows a 1.5 per cent fall on Thursday as the Credit Suisse crisis sent local stocks broadly lower.
The S&P 500 jumped 1.8 per cent for its best day in nearly two months after 11 of the biggest banks said they would deposit a combined $US30 billion ($45 billion) into First Republic Bank. The Dow Jones Industrial Average erased an early loss of 300 points to climb 371 points, or 1.2 per cent, while the Nasdaq composite jumped 2.5 per cent.
This week has been a whirlwind for markets globally on worries that banks may be bending under the weight of the fastest set of hikes to interest rates in decades. The concerns have been flaring since Friday’s collapse of Silicon Valley Bank, which was the second-largest bank failure in US history.
Since then, Wall Street has tried to root out banks with similar traits, such as lots of depositors with more than the $US250,000 limit that’s insured by the Federal Deposit Insurance Corp., or lots of tech startups and other highly connected people that can spread worries about a bank’s strength quickly.
First Republic Bank has been at the centre of the market’s swivels, and it rose 10 per cent on Thursday after slumping as much as 36 per cent early in the day. In the statement announcing their deposits, the group of 11 banks said the move “reflects their confidence in First Republic and in banks of all sizes.”
Besides stocks, Treasury yields also strengthened suddenly following the first reports of a possible rescue by the industry. That was a sign of increased confidence from the bond market.
Across the Atlantic, European stocks rose after the European Central Bank announced a hefty increase to interest rates. Concerns there were also easing about another bank, Credit Suisse, which helped cause markets to tumble sharply Wednesday. The Swiss bank has been battling troubles for years, but its plunge to a record low raised concerns just as more attention was shining on the wider industry.
Credit Suisse’s stock in Switzerland leaped 19.2 per cent on Thursday after it said it will strengthen its finances by borrowing up to 50 billion Swiss francs ($81 billion) from the Swiss National Bank.
Much of the damage for banks is seen as the result of the Federal Reserve’s fastest barrage of hikes to interest rates in decades. They’ve shocked the system following years of historically easy conditions in hopes of driving down painfully high inflation.
Higher rates can tame inflation by slowing the economy, but they raise the risk of a recession later on. They also hurt prices for stocks, bonds and other investments. That latter factor was one of the issues hurting Silicon Valley Bank because high rates forced down the value of its bond investments.
US Treasury Secretary Janet Yellen told a Senate committee on Thursday that the nation’s banking system “remains sound” and Americans “can feel confident” about their deposits.
Wall Street increasingly expects this week’s turmoil to push the Federal Reserve to hike interest rates next week by only a quarter of a percentage point. That would be the same sized increase as last month’s, and it would be counter to expectations from earlier this month for a hike of 0.50 points, as it had been potentially signalling.
The European Central Bank on Thursday raised its key rate by half a percentage point, brushing aside speculation that it may reduce the size because of all the turmoil around banks.
All the stress in the banking system has raised worries about a potential recession because of how important smaller and mid-sized banks are to making loans to businesses across the country. Oil prices have slid this week on such fears.
Reports on the US economy, meanwhile, continue to show mixed signals.
The job market looks remarkably solid, and a report said fewer workers applied for unemployment benefits last week than expected.
But other pockets of the economy are continuing to show weakness. Manufacturing has struggled, for example, and a measure of activity in the mid-Atlantic region weakened by more than forecast.
with AP
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