Stocks are creeping towards quarterly gains as bank concerns fade

SINGAPORE (Reuters) – Stock markets in Asia extended their recent gains on Thursday, as fears of a banking crisis receded and investors speculated whether the break-up of China’s Alibaba Group signaled that Beijing’s regulatory storm targeting tech companies may finally be abating.

MSCI’s index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) rose 0.2%. Like the S&P 500 (.SPX), it has recovered from its March lows as the fallout from the Silicon Valley bank meltdown reverberated around global markets.

Global Equities (.MIWD00000PUS) is on track for a quarterly gain of 4.9%. Japan’s Nikkei (.N225), which is on track for a quarterly gain of 6%, fell 0.8% on Thursday. US and European stock futures were broadly flat.

Calmer markets mean investors can now focus more on the economy, with German, Spanish and Italian inflation data due later in the day.

On Wednesday, Wall Street indexes jumped after the largest regulator of US banks appeared before Congress and focused his remarks on the failures at the Silicon Valley bank and its oversight, rather than the overall systemic across the financial sector.

The US dollar was strong, particularly against the safe-haven Japanese yen as investors undo some of the trades that were made in the past two weeks.

The yen was last traded at 132.59 per dollar.

As the dust settles on a wild and volatile ride after the Silicon Valley bank meltdown sparked fears of a broader banking crisis, the winners appear to be the bonds and big tech companies that tend to benefit when interest rates fall.

From the two-year period all the way to the 30-year period, US yields have been below the current federal funds rate of about 4.8% as markets have dramatically re-quoted price expectations.

Two-year bond yields fell 30 basis points for the quarter, the first quarterly drop since March 2020.

The interest rate-sensitive Nasdaq Index (.IXIC) is up nearly 14% this year and is heading for its best quarter in more than two years.

“Bond markets have been spectacularly volatile, at one point; US bonds are priced into interest rate cuts starting in June,” Barclays analysts said in a quarterly note.

“(But) in periods of real fear, investors turn to the US dollar; in March, the euro rose against the US dollar. There are no signs of funding pressures in US money markets or currency swaps,” they said.

“The global economy hit a bump in the road in March, which is a big bump. But this is a bump, not a brick wall.”

Ali Baba

In Asia, investors are cheering Alibaba’s (9988.HK) plans to spin off and list its business units separately as another sign that China wants to welcome global capital back.

“We have repeatedly emphasized that 2023 is the first time in four years that economic, regulatory and COVID policies will be aligned in a way that is supportive of growth and business,” said Morgan Stanley analysts.

“The quick announcement of (Alibaba’s) business restructuring yesterday effectively served as a final seal of reassurance that the regulatory tightening was over.”

CEO Daniel Chang said on a conference call Thursday that the breakup would turn the conglomerate into a holding company, rather than an operating company. Alibaba shares in Hong Kong, which topped 300 HK dollars in 2020, rose 1.5 percent to 96 HK dollars on Thursday. The broader Hang Seng Index (.HSI) was flat.

Elsewhere, in commodities trading, Brent crude futures settled at $77.95 a barrel and gold, which has been rallying over the past few weeks, was under slight pressure at $1,962 an ounce.

The Euro settled at $1.0844, while Bitcoin crossed $29,000 and is set for its best quarter in two years.

Reporting by Tom Westbrook. Editing by Sonali Paul and Sam Holmes

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