- Positive risk appetite boosts Asian stock futures amid easing banking concerns.
- Extreme volatility in rate expectations influences the market outlook.
- Investors seek a clearer global inflation picture for stock market stability.
Asian trading hours on Tuesday reflect a positive risk appetite among investors, with most Asian stock futures in the green.
MSCI's broadest index of Asia-Pacific shares is edging higher, along with HK50 and KOSPI. The US and European stock futures are looking firmer on the day.
Stocks experienced a relief rally due to a surge in global bond yields, particularly US Treasury bonds. The US regulator-backed deal for First Citizens BancShares to acquire the failed Silicon Valley Bank (SVB) alleviated broader concerns about issues in the banking sector.
On Monday, US banking regulators stated they planned to inform Congress that the overall financial system remains on solid footing despite recent bank failures. However, they will also comprehensively review their policies to prevent future collapses. Federal Reserve (Fed) Governor, Philip Jefferson, expressed concern about smaller banks.
It is premature to declare victory on the banking front until the situation remains calm for at least one or two quarters.
During this banking crisis, market pricing for the rate hike path has been volatile. In just one or two days, the market's outlook can change from expecting a 25 or 50 basis point rate hike to anticipating a 50 basis point rate cut in the year's second half.
The US Treasury 2-Year-10-Year yield spread is around 0.4%, again a concerning sign. Historically, four recessions had occurred when the yield spread reached 0.4%.
The market needs a clearer global inflationary picture for at least one more quarter to establish a clear bias for stocks. This would provide more certainty for investors and allow them to make informed decisions about the market's direction. Until then, the volatility in rate expectations and the ongoing concerns about the banking sector could continue to influence stock movements and investor sentiment.
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