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Bank Fears Ease But Yields Curb Investors’ Enthusiasm

A passerby walks past an electric monitor displaying various countries’ stock price index outside a bank in Tokyo, Japan, March 22, 2023.

A look at the day ahead in Asian markets from Jamie McGeever.

An interest rate decision in Thailand and Australian inflation top a light Asian calendar on Wednesday, with broader risk appetite likely to be tempered by a further rebound in U.S. bond yields.

The two-year Treasury yield rose only a few basis points, but the fact that it increased at all following the previous day’s 21 bps surge is notable, and rate-sensitive tech stocks dragged Wall Street into the red.

It is very early days, but there is a growing sense of optimism that the banking shock is abating. Michael Barr, the Fed’s vice chairman for supervision, and FDIC Chairman Martin Gruenberg told lawmakers on Wednesday that depositor funds in U.S. banks are safe and sound.

But this relief is running up what looks like a renewed spike higher in bond yields and borrowing costs, which is dampening risk appetite.

One curiosity is the dollar, weakening again on Tuesday despite the rise in U.S. bond yields. Indeed it mostly struggled to catch a safe-haven bid when the banking stresses were most acute and is now struggling even when U.S. yields are rising.

Dollar index,

Asia’s equity spotlight on Wednesday will shine on China’s Alibaba Group after the conglomerate founded by Jack Ma said on Tuesday it plans to split its business into six main units covering e-commerce, media and the cloud.

The news – a surprising and major revamp as China looks to ease regulatory crackdowns and support private enterprises – sent U.S.-listed shares up 14% on Tuesday, recovering some of the nearly 70% lost since curbs were imposed in late 2020.

On the Asian policy front on Wednesday, the Bank of Thailand is set to implement its fifth consecutive quarter-point rate hike in an attempt to get inflation back within target.

Eighteen of 22 economists polled by Reuters expect the BOT to raise its benchmark one-day repurchase rate to 1.75%.

Inflation has fallen to a 13-month low of 3.79%, but that is still above the BOT’s target range of 1% to 3% and policymakers have signaled that the tightening cycle is not yet over.

Australian inflation figures for February and a raft of data from Vietnam – Q1 GDP and March inflation, trade and industrial production – will also be released.

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

– Thailand interest rate decision (expects +25 bps)

– Australia inflation (February)

– U.S. pending home sales (February)

(By Jamie McGeever; Editing by Josie Kao)