Stocks on edge as traders wait on central bankers

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SINGAPORE – Asian stocks fluctuated amid cautious trade on Tuesday, while the dollar was strong ahead of a slew of data releases and central bank meetings starting with the Reserve Bank of Australia later in the day.

The overnight sale of First Republic Bank’s assets to JPMorgan Chase marked the third failure for a US bank in two months. Treasury yields rose in response, and expectations for one US rate hike this week have almost certainly been confirmed.

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JPMorgan shares rose 2.1 percent. The S&P 500 closed flat and ANZ analysts said the market’s relief was evident.

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MSCI’s broadest index of Asia-Pacific shares outside Japan fluctuated, down 0.2% after gains in technology and casino in Hong Kong proved short-lived.

Mainland China markets are closed. Japan’s Nikkei index hit a 16-month high, before retreating slightly, as the banking sector declined.

Hundreds of thousands of Chinese visitors flocked to Macau’s casinos this past weekend for the Labor Day holiday, and MGM Resorts international overnight reported better-than-expected revenue and called out high volumes in Las Vegas and Macau.

Meanwhile, the yen stabilized after two sessions of sharp declines in the wake of the Bank of Japan’s decision on Friday to stick to ultra-easy monetary policy for the time being.

Politics contrasts with the US and Europe where central banks are deepening the cycle of hiking and still going.

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The yen fell through its 200-day moving average on Tuesday and hit a two-month low for the dollar early Wednesday before settling at 137.40.

The Japanese currency posted a fresh 14-1/2 low of 151.08 against the euro on Wednesday and is trading as low as the Swiss franc in Refinitiv data dating back to the early 1980s. The euro settled at $1.0987.

‘Unpredictable’

Much of Europe is also coming back from the Labor Day holiday on Tuesday, with final activity polls, preliminary inflation figures and a European bank lending survey all to be watched closely given the latest pressures in the sector.

European futures rose 0.1% in Asia, while S&P 500 futures fell 0.1%.

On the monetary policy front, the Reserve Bank of Australia (RBA) holds the lead in a week of central bank meetings in the US, Europe and Norway. The markets are ripe for the RBA to see where it stands and others to go higher.

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“It (the Australian dollar) could rise 0.8% if the RBA raises interest rates by 25 basis points as we expect, because financial markets put almost no chance of change,” said Christina Clifton of the Commonwealth Bank of Australia in Sydney.

Interest rate futures trading is suggesting a 95% chance of a 25 basis point Fed hike on Wednesday, but markets are also cutting rates by the end of the year.

The two-year Treasury yield, which tracks short-term interest rate expectations in the US, was flat at 4.1221% in Asia. US credit default swaps – which reflect insurance against default – are illiquid but have risen recently as brinkmanship pushed the US government close to its borrowing limit.

Overnight, Treasury Secretary Janet Yellen said the Treasury could run out of money to cover liabilities as soon as June 1.

“The next few weeks will be unpredictable,” Goldman Sachs analysts said in a note, with uncertainty about an exact deadline not helping focus lawmakers’ minds.

“That could increase the risk that Congress will not raise the debt limit in a timely manner, which could result in non-payments but could also lead to a short-term extension, in which case the process will be repeated after a few weeks or a few months.”

(Editing by Shri Navaratnam)