What banking crisis? Ending Q1 on a high

March 31 (Reuters) – Asian markets go into the final trading day of the quarter in a buoyant mood, ready to face Friday’s barrowload of regional economic data with a sense of optimism and resilience that would barely have been believable a few weeks ago.

Maybe it is just window-dressing for the end of the quarter, but investors are driving risky assets higher across the board, doing their best to make the banking crisis of March 2023 look like a blip in the rear-view mirror.

Another solid performance on Wall Street on Thursday should set the tone for Asian stocks on Friday, with tech again leading the way. US financials was the only S&P 500 sector to fall on Thursday, but they are still up 3% this week, the best week since January.

It remains to be seen how successful US authorities have been in ring-fencing banks from contagion, and there is little doubt that deteriorating credit conditions will be a drag on growth.

Right now though, it’s ‘risk on’ globally – the MSCI Asia ex-Japan equity index is up three weeks in a row, the MSCI World is having its best week since mid-January, and the Hang Seng tech index is at a six-week high.

Although bond yields and the Fed rate outlook have picked up in the last two weeks, they are still significantly below the historic peaks pre-banking shock. Tech, in particular, is on a roll.

Further indications that China is reversing the sweeping regulatory crackdown on its technology sector of recent years is also adding fuel to the rally.

After investors gave Alibaba’s restructuring plans this week a big thumbs up, e-commerce firm JD.com said on Thursday it plans to spin off its property and industrial units and list them on the Hong Kong Stock Exchange.

US-listed shares in JD.com jumped 8% on Thursday, US-listed shares of Alibaba are up 20% in the last three sessions, the Nasdaq 100 is flirting with a bull market – up more than 20% from its December low – and the wider Nasdaq is up 15% this year.

On the Asian data front on Friday, investors have no shortage of potential market-movers, including: Chinese PMIs for March; Japanese unemployment, retail sales and industrial production; and private sector credit figures from Australia.

Here are three key developments that could provide more direction to markets on Friday:

– China NBS manufacturing and services PMI (March)

– Euro zone flash CPI inflation (March)

– US PCE inflation (February)

(By Jamie McGeever; Editing by Josie Kao)

Dollar weakens as inflation data lifts euro

NEW YORK, March 30 (Reuters) – The US dollar fell to a 1-week low against the euro on Thursday as German inflation data helped lift the common currency and as concerns over the banking sector receded.

Inflation eased significantly in Germany in March on the back of lower energy prices but was above forecasts, adding pressure on the European Central Bank to further tighten its monetary policy.

Separately, data showed that Spain’s consumer prices rose 3.3% year-on-year in March, the slowest pace since the 12-month period through August 2021 and less than expected by analysts.

The European Central Bank, which has made it clear future rate hikes will depend on economic data, has increased its key deposit rate by 350 basis points to 3% since July as it seeks to tame surging inflation.

“There is a divergence developing between the ECB and the Fed that is going to weigh on the dollar,” Bipan Rai, North America head of FX strategy at CIBC Capital Markets in Toronto, said.

“(European inflation data) suggests there is more work for the ECB to do and that could close the policy rate gap between the ECB and the Fed going forward,” he said.

Last week, the Federal Reserve’s Federal Open Market Committee raised interest rates by 25 basis points, as expected, but took a cautious stance on the outlook because of the banking sector turmoil.

“We believe the main pillars of US dollar strength last year — aggressive tightening by the Federal Reserve and a resilient US economy — are unlikely to support the currency going forward,” Mark Haefele, chief investment officer at UBS Global Wealth Management, said in a note on Thursday.

Haefele recommended increasing exposure to select G10 currencies, including the Australian dollar, the Japanese yen and the Swiss franc.

On Thursday, the euro was 0.55% higher at 1.09035, the highest since March 23. For the year, the euro was up nearly 2% after having slumped 5.7% in 2022.

“The euro was hit by a perfect storm of shocks most of last year, but things have turned considerably more positive now,” strategists at BofA Global Research said in a note.

“However, we warn that the market has once again run ahead of itself, pricing early Fed cuts, with re-pricing likely to weigh on EUR/USD in the short term,” the strategists wrote.

Data on Thursday showed the number of Americans filing new claims for unemployment benefits rose moderately last week, showing no signs yet that tightening credit conditions were having a material impact on the US labor market, which remains tight.

The dollar index, which measures the currency against six major peers, was 0.468
% lower at 102.16.

The pound rose 0.58% against the dollar on Thursday, putting it on pace for a nearly 3% gain for March, its strongest monthly performance since November, as headline inflation in Britain showed no signs of slowing down.

In cryptocurrencies, bitcoin was about 1.6% lower on the day at USD 27,913, after rising to a near 1-week high of USD 29,170 earlier in the session. The digital currency came under pressure recently as investors worried over cryptocurrency exchange Binance and Chief Executive Changpeng Zhou being sued by the Commodity Futures Trading Commission(CFTC) over regulatory violations.

(Reporting by Saqib Iqbal Ahmed; Editing by Andrew Heavens)

Gold jumps on weaker dollar, with eyes on inflation data

March 30 (Reuters) – Gold prices gained nearly 1% on Thursday as a weaker dollar and lower bond yields drove demand for the precious metal, while investors kept their eyes peeled for US inflation data to gauge the Federal Reserve’s next move.

Spot gold was up 0.9% at USD 1,980.83 per ounce by 2:53 p.m. EDT (18:53 GMT), having touched its highest since March 24 at USD 1,984.19 earlier. US gold futures settled up 0.7% at USD 1,997.70.

The dollar index dipped 0.5%, making gold more attractive for overseas buyers, while benchmark 10-year Treasury yields eased.

“Much of this rally continues to be a short covering rally,” said Bart Melek, head of commodity strategies at TD Securities. “The catalyst here is the continued expectations that rates in the US will top out.”

Data showed US gross domestic product rose 2.6% in the fourth quarter. The Fed’s favored inflation gauge, core personal consumption expenditures (PCE), is due on Friday.

Investors will be scanning the data for clues about the path of the US central bank’s monetary policy. According to the CME FedWatch tool, markets are pricing in a roughly 50-50 chance of the Fed maintaining rates at current levels at its May meeting.

“Anything below expectations on the core (PCE) would imply that there is less need or requirement for tight monetary policy from the Federal Reserve,” Melek said.

Federal Reserve Bank of Boston leader Susan Collins said it seemed likely there would be only one more rate hike this year, while Richmond Fed President Thomas Barkin said inflation remains too high and may take longer than expected to decline.

“We expect the gold price to fall to around USD 1,900 per troy ounce – previously USD 1,800 per troy ounce – in the coming months,” Commerzbank wrote in a note.

Spot silver rose 1.8% to USD 23.76 per ounce, platinum added 2% to USD 986.59 and palladium gained nearly 2% to USD 1,467.87.

(Reporting by Deep Vakil in Bengaluru; Editing by Kirsten Donovan, Krishna Chandra Eluri and Richard Chang)

Global derivatives industry defends CDS after banking blow-ups

LONDON, March 30 (Reuters) – The derivatives industry body, the International Association of Swaps and Derivatives Association (ISDA), has backed Credit Default Swaps amid concerns about the role they have played in the recent bout of global banking turmoil.

Credit default swaps (CDS) are derivatives that offer insurance against the risk of a bond issuer – such as a bank – not paying their creditors.

European Union markets watchdog ESMA said on Thursday that it, together national regulators, had been “looking into the recent market movements, including in the CDS market”.

It followed comments earlier in the week from Andrea Enria, the supervisory chief at the European Central Bank, who highlighted the sharp volatility in Deutsche Bank’s CDS as its shares tumbled on Friday.

Far from being opaque, one of the criticisms levelled by Enria, ISDA’s Chief Executive Officer Scott O’Malia said regulators already had access to a extensive data showing, “who is trading what, when and in what size.”

Changes made after the 2008 financial crash mean that in 18 of the 20 top world economies all over-the-counter (OTC) derivatives – including “single-name” CDS as those for individual banks or firms are known – are now reported to regulators via so-called trade repositories.

“These rules mean single-name CDS, which play an important role in managing risk, are much more transparent,” Malia said.

In addition, the Depository Trust & Clearing Corporation’s (DTCC) Trade Information Warehouse – a centralized database that details virtually all cleared and bilateral CDS contracts – contains information for more than 50,000 accounts across 95 countries.

Clearing of individual bank or company CDS is also available at LCH’s CDSClear and ICE Clear Credit. For example, LCH offers clearing in over 300 European corporate names, including both Credit Suisse and Deutsche Bank, as well as other big lenders such as Barclays, BNP Paribas, and HSBC.

Overall, the credit derivatives market is also far smaller than it was before the 2008 crisis.

According to data from the Bank for International Settlements, the gross market exposure of credit derivatives was USD 247 billion at the end of June 2022 versus USD 5.4 trillion at the end of 2008.

“The credit derivatives market continues to play a critical role, particularly during times of volatility,” Malia said. “It enables firms to customize and hedge their exposure to individual credits or sectors.”

(Reporting by Marc Jones; Editing by Toby Chopra)

China-driven growth seen helping emerging assets despite bank worries

LONDON, March 30 (Reuters) – Stronger Chinese-led emerging markets growth will likely buffer the stocks, bonds, and currencies of many developing nations as markets in the United States and Europe are whipped around by banking turmoil.

But weeks of volatility in global markets, spurred by bank failures, rescues and emergency government assistance, could knock vulnerable emerging economies, strategists said, necessitating careful picks.

“The growth premium in favour of emerging markets driven by China is clearly even more confirmed,” Alessia Berardi, head of emerging markets (EM) research at Amundi, Europe’s biggest asset manager, told Reuters.

Analysts expect high interest rates, inflation, and stress among some financial institutions to dampen growth in developed markets like the United States.

The US Federal Reserve raised rates by a quarter point last week but signalled it could pause hikes and some analysts expect it to cut later this year as the economy slows.

Jonny Goulden, head of EM local markets and sovereign debt strategy at JPMorgan, noted the risk premium on EM bonds had risen amid the wider pressures, but the fallout had so far been limited.

“As fixed income returns have been cushioned by rates markets that have priced Fed cuts later in the year, EM has had few signs of real stress,” Goulden said in a note to clients.

Many of the world’s top central banks are openly contemplating an early end to rate hikes, not least because of the recent financial turmoil.

This could pave the way for EM policymakers to start reducing interest rates, supporting growth.

BlackRock, the world’s largest asset manager, switched to an overweight rating on EM local debt last week, from neutral previously.

“We prefer income in emerging markets debt with central banks closer to turning to cuts than developed markets, even with potential currency risks,” it said in a research note.

Local EM bonds have seen a return of 3.3% in the month-to-date, compared to a 3.1% gain in US 10-year Treasuries.

Attractive local debt valuations in Brazil, Columbia, Peru, and Mexico offer good opportunities over the next six months, Amundi’s Berardi said, while currencies call for more caution.

STELLAR START FIZZLES OUT

The re-opening of China’s economy at the start of this year, following three years of COVID-19 lockdowns, sparked a strong rally in emerging assets.

While gains have been more muted recently, the MSCI’s EM equities index is on track for a 2% gain in March, outperforming pan-European stocks .STOXX and a touch above the US S&P 500.

EM investors are increasingly positive, and sentiment is expected to be sustained into the second quarter, a survey of more than 100 EM investors by HSBC just before the banking turmoil showed.

Some of the momentum comes from domestic conditions in individual markets, said Juliana Hansveden, portfolio manager for EM sustainable equities at Ninety One, a global investment manager.

“A quarter of the world’s population is unbanked and most of those people live in China, India, Mexico etc.,” she said.

But others were more pessimistic – especially on the outlook for emerging economies with lower credit ratings or already in debt distress.

Currently, the risk premium on bonds issued by 18 emerging economies in JPMorgan’s EMBIG hard currency index stands more than 1,000 basis points over US Treasuries, effectively shutting them out of international capital markets. Those include countries that have defaulted on debts such as Sri Lanka and Zambia, but also the likes of Egypt and Pakistan.

At the start of 2022, that number stood at nine.

The banking sector troubles have compounded the problems of already-struggling EM countries, said Frank Gill, one of S&P Global’s top sovereign analysts.

“It’s not a great time to price a bond if you are a BB or a lower B (rated country),” he said.

(Reporting by Duncan Miriri Additional reporting by Marc Jones and Karin Strohecker Editing by Mark Potter)

Vietnam central bank to cut interest rates further

HANOI, March 30 (Reuters) – Vietnam’s central bank intends to cut its policy rates further to support economic growth, deputy governor of the State Bank of Vietnam, Dao Minh Tu, said on Thursday.

“The central bank’s message is to cut its rates…there will be another round of rate cuts,” Tu was quoted by the Tuoi Tre newspaper as saying, without giving further details.

The Southeast Asian country’s economic growth slowed to 3.32% in the first quarter, against a 5.92% expansion in the fourth quarter of 2022, as weak global demand slashed exports.

Earlier this month, the central bank cut several policy rates to increase liquidity and support growth, in a surprise move that set it apart from regional peers amid the global financial turmoil.

Tu said future rate cuts would allow local commercial banks to cut their lending rates, according to the report.

“We have abundant liquidity and we encourage lending,” Tu was quoted as saying.

(Reporting by Khanh Vu Editing by Ed Davies)

Ex-dividend trading trips Japan’s Nikkei, tech shares rise

TOKYO, March 30 (Reuters) – Japan’s Nikkei share average finished lower on Thursday after three straight sessions of gains, as a clutch of stocks traded ex-dividend, while losses were limited as technology stocks tracked overnight Wall Street strength.

The Nikkei share average fell 0.36% to close at 27,782.93 and the broader Topix lost 0.61% to 1,983.32.

“Overall, the market was affected by the shares that went ex-dividend, but it was weaker than expected, given overnight strength of Wall Street,” said Yugo Tsuboi, a senior strategist at Daiwa Securities.

Investor concerns about US rate hikes have resurfaced as fears of a possible financial crisis eased, he said, adding that expectations were rising that the Bank of Japan would tweak it policy.

US stocks rallied overnight, with all three major indexes rising at least 1%, as upbeat outlooks from Micron Technology and other companies eased some worries about the health of the economy.

All but five of the Tokyo Stock Exchange’s 33 industry sub-indexes fell, with oil refiners .IPETE.T leading the losses with a 2.89% drop.

Heavyweight SoftBank Group fell 2.04% to become the biggest drag on the Nikkei, after jumping more than 6% in the previous session.

Bucking the trend, game maker Sony Group rose 2.09% and lens maker Hoya gained 1.14%.

Tyre makers were the top gainers among the TSE’s industry groups with a 0.9% rise.

(Reporting by Junko Fujita; Editing by Subhranshu Sahu)

Thailand, Japan renew bilateral local currency swap arrangement

BANGKOK, March 30 (Reuters) – The Bank of Thailand and the Bank of Japan have renewed the Bilateral Local Currency Swap Arrangement (BSA), first signed in 2020, for a three-year period until March 30, 2026, Thailand’s central bank said on Thursday.

The BSA allows for the exchange of local currencies between the two central banks of up to 240 billion baht (USD 7.02 billion) or 800 billion yen, enabling them to provide baht and yen liquidity to eligible financial institutions in Thailand and Japan, the Thai central bank said in a statement.

(Reporting by Orathai Sriring; Editing by Kanupriya Kapoor)

Oil stable on mixed drivers; market eyes Iraq exports

SINGAPORE, March 30 (Reuters) – Oil was nearly steady on Thursday as a surprise drop in US crude stockpiles offset a smaller-than-expected cut to Russian supplies, while investors closely watched developments on Iraqi Kurdistan oil exports.

Brent crude futures fell 5 cents, or 0.1%, to USD 78.23 a barrel at 0630 GMT, while West Texas Intermediate crude rose 12 cents, or 0.2%, to USD 73.09 a barrel.

Producers have shut in or reduced output at several oilfields in the semi-autonomous Kurdistan region of northern Iraq following a halt to the northern export pipeline, with more outages on the horizon, company statements showed.

But the Kurdistan-Iraq premium in oil prices could vanish sooner than expected, analysts from Citi said Thursday.

The “changes in Iraq’s domestic politics may lead to a durable political settlement very soon”, said Citi, estimating that pipeline flows could grow by some 200,000 barrels per day (bpd).

Meanwhile, an unexpected drop in US crude oil stockpiles limited price declines, with imports sliding to a two-year low, based on US Energy Information Administration.

Crude inventories fell by 7.5 million barrels to 473.7 million barrels in the week to March 24, while analysts’ expectations in a Reuters poll were for a rise of 100,000 barrels.

However, gasoline stocks fell by 2.9 million barrels to 226.7 million barrels, compared with analysts’ expectations for a 1.6 million-barrel drop.

“A seasonal strengthening in demand by the end of Q2 is expected to drive (oil) prices higher from current levels,” said analysts from National Australia Bank.

While oil prices softened slightly on Thursday, they remained within the trading band seen since the start of 2023, the analysts added.

Meanwhile, lower-than-targeted cuts to Russian crude production eased supply concerns.

Russian crude production fell by around 300,000 bpd in the first three weeks of March, less than targeted cuts of 500,000 bpd, sources familiar with the data told Reuters.

(Reporting by Jeslyn Lerh in Singapore; Additional reporting by Laila Kearney in New York; Editing by Stephen Coates and Jamie Freed)

UPDATE 8-Oil rises over 1% on Iraqi supply risks, U.S. crude draw

Oil firms halt, cut output in Kurdistan after pipeline closure

US crude stockpiles fall unexpectedly as imports hit 2-year low

OPEC+ unlikely to tweak oil policy in Monday talks – delegates

Updates with settlement prices

By Stephanie Kelly

NEW YORK, March 30 (Reuters) – Oil prices rose more than 1% on Thursday, supported by lower U.S. crude stockpiles and a halt to exports from Iraq’s Kurdistan region, which offset pressure from a smaller-than-expected cut to Russian supplies.

Brent crude futures LCOc1 rose 99 cents, or 1.3%, to $79.27 a barrel. West Texas Intermediate crude CLc1 rose $1.40, or 1.9%, to $74.37.

Supporting prices, producers have shut in or reduced output at several oilfields in the semi-autonomous Kurdistan region of northern Iraq following a halt to the northern export pipeline, company statements showed. More outages are on the horizon.

Iraq was forced to halt around 450,000 barrels per day (bpd) of crude exports, or half a percent of global oil supply, from the Kurdistan region (KRI) on Saturday through a pipeline that runs from its northern Kirkuk oil fields to the Turkish port of Ceyhan.

However, “changes in Iraq’s domestic politics may lead to a durable political settlement very soon”, Citi analysts said Thursday, estimating that pipeline flows could increase by 200,000 barrels per day (bpd).

Also supporting prices was a Wednesday report from the U.S. Energy Information Administration that U.S. crude oil stockpiles fell unexpectedly in the week to March 24 to a two-year low. EIA/S

Crude inventories USOILC=ECI dropped by 7.5 million barrels, compared with expectations for a rise of 100,000 barrels in a Reuters poll of analysts.

“Traders are starting to let yesterday’s inventory numbers sink in a little bit,” Price Futures Group analyst Phil Flynn said.

These factors offset bearish sentiment after a lower than expected cut to Russian crude oil production in the first three weeks of March.

The 300,000 bpd production decline compared with targeted cuts of 500,000 bpd, or about 5% of Russian output, sources familiar with the data told Reuters.

Markets are now waiting for U.S. spending and inflation data due on Friday and the resulting impact on the value of the U.S. dollar.

Meanwhile, OPEC+ is likely to stick to its existing deal on reduced oil output at a meeting on Monday, five delegates from the producer group told Reuters.

“While we think oil prices may remain volatile in the near term, we still expect rising Chinese crude imports and lower Russian production to lift prices over the coming quarters,” UBS said on Thursday.

China’s refined fuel consumption this year is likely to grow 3% from 2019 pre-COVID levels, state energy giant PetroChina said on Thursday.

“If all goes as expected, and we manage to avoid a recession, oil prices will dance around $75-$85/bbl in the coming months,” FGE analysts said in a note.

(Reporting by Stephanie Kelly in New York; additional reporting by Rowena Edwards in London and Jeslyn Lerh in Singapore
Editing by David Gregorio, Kirsten Donovan)

((Stephanie.Kelly@thomsonreuters.com; 646-223-4471; Reuters Messaging: stephanie.kelly.thomsonreuters.com@reuters.net))

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