As the world watches the unfolding drama of the U.S. Federal Reserve’s tapering of its bond-buying program, Asian stock markets have been in turmoil. With the announcement of a surprise rescue of Credit Suisse, Asian stocks bounced gingerly from their lows on Tuesday.
However, the market mood remains fragile. The stress and uncertainty surrounding the taper’s impact have traders wondering whether the U.S. rate hikes would end.
Asian Stocks Rebound As Credit Suisse Is Saved
On Tuesday, Asian stocks recovered from their lows due to Credit Suisse’s safety, which halted the decline of bank stocks. However, the sentiment still needed to be stronger.
The finance system stress made traders doubt how the Federal Reserve would act at its two-day gathering later. The U.S. futures interest rate suggests that the peak of rate hikes may be close or has already been reached, as stability is now a priority rather than suppressing inflation.
The MSCI index of the Asia-Pacific stock markets, excluding Japan, increased by 0.4%. The Australian market also experienced a lift of 0.9%, recuperating from a four-month low.
Additionally, HSBC and Standard Chartered shares increased more than 1.5% in the Hong Kong trading market, bouncing back after a harsh Monday. With the Japanese trading market shut down for a holiday, Treasuries were not traded in Asia, causing a thinning of currency exchange.
Meanwhile, S&P 500 futures stayed relatively unchanged, while European futures rose by 0.5%. As Jonathan Mott of Barrenjoey in Sydney noted:
“In contrast to the eighteen months of the latest worldwide financial crisis, the current situation has only been in place for ten days. Yet, it has already caused some U.S. regional financial institutions to fail, and a merger of UBS and Credit Suisse at a book value of 0.06x.”
He further remarked that, despite the efforts of global regulators, this appears to be a match of ‘whack-a-mole.’ First Republic, a lender based in San Francisco, also showed signs of stress as its stock price plummeted by half on Monday.
This is due to fears that the $30 billion in deposits by large banks would not be sufficient to secure its steadiness. Meanwhile, reports suggest that U.S. officials are temporarily exploring methods to extend FDIC coverage to all deposits.
Regulators Reassure Investors Ahead Of Federal Reserve And Bank Of England Decisions
The recent Credit Suisse write-down of “additional tier 1” debt to zero caused a commotion in the market, leading to intense trading of similar debt. This was because the bank chose to favor creditors over its shareholders.
Nevertheless, regulators in Europe and Britain have assured investors that this would not become a norm. Events later this week will clarify the questions regarding rates as the Federal Reserve and the Bank of England decide on their respective rate policies.
Market watchers predict a one-in-four chance that the Fed won’t raise rates while opinions on a rate hike in the U.K. remains divided.