Stocks Slide, Bonds Rally on Bank Woes; Yen Falls: Markets Wrap

(Bloomberg) — Stocks slumped and Treasuries rallied Friday amid concern that pockets of trouble in the US banking sector could portend broader dangers as higher interest rates start to bite.

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The yen took the limelight in the currency market, weakening as much as 0.6% versus the dollar after the Bank of Japan kept monetary settings unchanged at Governor Haruhiko Kuroda’s final policy meeting. The benchmark 10-year Japanese bond yield tumbled more than 11 basis points below the 0.5% ceiling set by the BOJ.

A gauge of Asia equities fell as much as 2%, the most in more than a month, following a sharp decline on Wall Street Thursday, while the MSCI China Index erased all of its gains for this year. Contracts for European and US equities were in the red.

Finance stocks were among the hardest hit in Asia after banks came under fire in the US session with the collapse of Silvergate Capital Corp. and troubles at Silicon Valley-based lender SVB Financial Group.

“SVB is not directly going to have an impact on Asia — but it’s tremendously important in that it is showing that the pain is starting to move closer from smaller, risky parts of the market such as crypto to more established traditional finance,” said Ilya Spivak, head of global macro at tastylive, a financial network. “It’s showing that the tightening is starting to roll through the economy.”

Two-year Treasury yields dropped eight basis points to 4.78%, extending their fall to around 28 basis points since Wednesday’s close. Australian and New Zealand bonds also rallied Friday with similarly large moves in yields for shorter maturity bonds.

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While the drop in Japan’s benchmark yield was also large, it could have been much bigger in the other direction had Kuroda delivered any surprise tightening. His successor Kazuo Ueda faces a long-term challenge with bond-market dysfunction and upward pressure on interest rates.

“We expect continued policy normalization and it is likely to come under the new Governor Ueda,” said Jennifer Kwan, senior investment specialist for global fixed income, currency and commodities at JPMorgan Asset Management. “We are staying underweight in Japanese bonds, in view of the potential higher yields in JGBs later this year.”

US stocks had gained early in the session Thursday after data showed weekly jobless claims had risen to 211,000 during the week ending March 4, ahead of expectations for 195,000 and marking the first time claims surpassed 200,000 since early January.

The numbers set the stage for Friday’s monthly jobs report, with even just slightly stronger-than-forecast figures expected to cement bets for a bigger hike at the March 21-22 Fed meeting. Economists project a 225,000 increase in February payrolls, about half January’s blockbuster pace, but a figure in that range would confirm the US economy continues to add jobs at a strong rate.

A softer-than expected number could soften wagers on a half-point move in March, and tilt expectations back to a quarter-point hike.

However, the Fed will have to position to “potentially raise by a half a percentage point very quickly” if the payrolls data come in hotter than expected, said Danielle DiMartino Booth, chief executive officer and chief strategist at Quill Intelligence, on Bloomberg Television.

Cryptocurrencies dropped after pulling up slightly early on Friday. Bitcoin on Thursday fell 8.1%, the most since November, amid Silvergate’s meltdown.

In commodities, oil headed for the biggest weekly loss since early February as the risk of faster interest-rate hikes weighed on the outlook for energy demand.

Key events this week:

• US nonfarm payrolls, unemployment rate, monthly budget statement, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures fell 0.8% as of 6:42 a.m. London time. The S&P 500 fell 1.8%

• Nasdaq 100 futures fell 0.6%. The Nasdaq 100 fell 1.8%

• Euro Stoxx 50 futures fell 1.7%

• Japan’s Topix index fell 1.9%

• Hong Kong’s Hang Seng Index fell 2.7%

• China’s Shanghai Composite Index fell 1.3%

• Australia’s S&P/ASX 200 Index fell 2.3%

Currencies

• The Bloomberg Dollar Spot Index was little changed

• The euro was little changed at $1.0584

• The Japanese yen fell 0.5% to 136.81 per dollar

• The offshore yuan was little changed at 6.9789 per dollar

• The Australian dollar was little changed at $0.6587

• The British pound was little changed at $1.1921

Cryptocurrencies

• Bitcoin fell 1.4% to $19,935.66

• Ether fell 1.4% to $1,412.48

Bonds

• The yield on 10-year Treasuries declined eight basis points to 3.82%

• Japan’s 10-year yield was unchanged at 0.385%

• Australia’s 10-year yield declined 13 basis points to 3.58%

Commodities

This story was produced with the assistance of Bloomberg Automation

–With assistance from Rob Verdonck, Ishika Mookerjee and Akshay Chinchalkar.

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