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Marketmind: This is what a relief rally looks like



© Reuters. FILE PHOTO: Silhouettes of passerby are seen as they stand in front of an electric monitor displaying Japan’s Nikkei share average and world stock indexes outside a brokerage in Tokyo, Japan, October 21, 2022 REUTERS/Issei Kato/File Photo

By Jamie McGeever

(Reuters) – A look at the day ahead in Asian markets from Jamie McGeever.

Market sentiment can be pretty gloomy in a financial crisis. So when national authorities offer, approve or backstop gargantuan funding and rescue packages worth hundreds of billions of dollars, investors are entitled to get a little bit excited.

Thursday’s remarkable risk-on rally reflects exactly that and barring any unforeseen events – a dangerous assumption in such febrile times, perhaps – Asia should round off a tumultuous week on a high note on Friday.

Up to 11 U.S. banks, including giants JP Morgan Chase (NYSE:), Morgan Stanley (NYSE:) and Citigroup (NYSE:), will deposit up to $30 billion into stricken First Republic Bank (NYSE:), sources familiar with the matter told Reuters.

The package is backed by U.S. regulators, and media reports said JP Morgan boss Jamie Dimon met with Treasury Secretary Janet Yellen on Thursday to discuss it.

This followed news late on Wednesday that Switzerland’s central bank will offer the even more stricken Credit Suisse up to $54 billion in loans to shore up liquidity.

Not only did the Credit Suisse lifeline help calm markets, it gave cover for the European Central Bank (ECB) to deliver an inflation-fighting 50 basis point rate hike on Thursday.

Raising rates during a banking crisis may come back to haunt the ECB – it wouldn’t be the first time – but then again, its new strategy of data dependency could also give it cover to reverse course in the coming months if it has to.

What started as another grim-looking session on Thursday – safe-havens like the yen and Treasuries were riding high in early trade – culminated in a solid risk rally across the board.

The yen slumped from its one-month high, the two-year U.S. Treasury yield ended the day 20 bps higher, U.S. regional banks had their biggest rise in four months, up 3.26%, and the Nasdaq jumped 2.5% for its best day in six weeks.

Welcome relief for investors all round. But if previous banking crises have taught us anything, it is that they are never resolved in a matter of days, no matter how bold authorities’ action may be.

Underlying the scale of fear that has permeated markets since the collapse of Silicon Valley Bank at the weekend, Fed data on Thursday showed that, as of Wednesday, banks took a record $152.9 billion from the Fed’s discount window this week.

Together with its other emergency funding measures, the Fed’s balance sheet grew by $300 billion this week.

Markets could be in yo-yo mode in the weeks ahead. But Friday, in Asia at least, looks like being an up day.

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

– Japan tertiary activity index (January)

– Malaysia trade (February)

– Euro zone inflation (February)

(By Jamie McGeever; editing by Josie Kao)

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