SINGAPORE, March 10 (Reuters) – Falling bank shares sent Asian markets lower on Friday, while bonds rose and expectations for U.S. interest rate hikes were cut after a surprise capital raise at a Silicon Valley startup lender sparked fears of broader stress in the banking system.
The yen weakened and Japanese government bond yields fell after the Bank of Japan opted to keep stimulus settings steady at Governor Haruhiko Kuroda’s last meeting in charge, as expected.
The benchmark 10-year JGB yield, which the BOJ maintains within 50 basis points either side of zero, retreated sharply from that ceiling to finally sit at 0.445%. The yen was last down about 0.4% at 136.615 per dollar after kneeling as much as 0.6%.
Japan’s Nikkei (.N225) expected the decline to be about 1% down, compared with a 1.23% loss before the central bank’s decision.
MSCI’s broadest index of Asia-Pacific shares outside Japan ( .MIAPJ0000PUS ) fell 1.8% to a two-month low, with banks and technology shares in Hong Kong leading losses.
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S&P 500 futures fell 0.57% after the cash index ( .SPX ) fell 1.8% and fell below its 200-day moving average.
The U.S. dollar rallied and Treasuries on the short end extended strong overnight gains – pushing two-year yields down another 12 basis points to 4.7837% in Tokyo trade.
Fed Funds futures also rose sharply, pulling the market-implied peak in U.S. interest rates from above 5.6% to just below 5.5%, pricing in about a 50% chance of a Fed hike of 50 basis points this month from more than 70% a day earlier.
The sharp moves followed SVB Financial Group ( SIVB.O ), parent of startup lender Silicon Valley Bank, noting a higher-than-expected “cash burn” from customers, falling deposits and rising capital costs. It announced a share sale hours after crypto-focused lender Silvergate ( SI.N ) said it was shutting down.
SVB stock was still down after hours and has lost about 70% of its value in 24 hours. Big bank shares were dragged down by it, with JP Morgan Chase & Co ( JPM.N ) losing 5.4%, Citigroup ( CN ) down 4.1% and major lenders in Asia and Australia falling – albeit less – on Friday morning.
“I think there is speculation that there are broader problems within the US banking system, or there is the potential, and that has caused a rethinking of Fed policy,” ING economist Rob Carnell said in Singapore.
“The thinking is that if what the Fed is doing is causing this distress, then maybe they won’t do much more,” he said.
“But it’s a big move on the back of what appears to be some pretty woolly speculation … which just shows how jittery the markets are right now, and this has spilled over into all the other markets.”
Surprisingly high US jobless claims have offered a weak entry into broader US employment data later on Friday, putting some pressure on recent dollar gains.
The numbers loom as a crucial barometer of the health of the US labor market and the direction of interest rates, after Fed Chairman Jerome Powell warned that interest rates could rise further and faster if data show it is necessary to tame inflation.
Bitcoin nursed losses just above the psychological $20,000 level as the fallout from Silvergate’s demise weighs on the broader sentiment in digital assets.
Brent crude futures fell to $81.19 a barrel. barrel, while gold was set at $1,830 per barrel. ounces.
Editing by Simon Cameron-Moore and Kim Coghill
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