Asian markets dipped Friday after a broadly healthy week, as lingering concerns about the banking sector played against hopes central banks could be nearing the end of their interest rate hiking cycle.
Pledges by authorities to provide support to troubled lenders and depositors provided stability for investors worried that the collapse of two US banks and the takeover of Credit Suisse could usher in a new financial crisis, reports BSS.
The turmoil has also forced the Federal Reserve and other central banks to change their monetary policy game plan to avoid further problems in the finance industry.
On Wednesday, the Fed announced a quarter-point rate hike — half what was expected before the latest upheaval — and indicated it could pause soon, while there is growing talk it could even begin cutting by year’s end.
Observers said an expected tightening of credit in the finance sector — caused by wary banks lending less — would allow the Fed to step back.
But SPI Asset Management’s Stephen Innes cautioned: “A Fed rate cut would likely require more turmoil in the banking sector, but more importantly, how intensely the expected tighter credit market crunch will negatively impact the real economy.”
The increase came as central banks in the United Kingdom, Switzerland and Norway also raised rates, with the European Central Bank having done so last week.
Analysts said the moves indicated officials were confident the banking crisis could be contained and were still focused on bringing inflation down.
But data indicating the US jobs market remained tight highlighted the need for the Fed to stick to its policy of battling prices. Jim Baird, at Plante Moran Financial Advisors, warned the troubles were not over yet.
“The push-and-pull between financial market stability and inflation that is receding more slowly than anyone would prefer will further complicate an already significant challenge for the Fed, increasing the risk of a policy misstep and keeping the door open for a potential recession on the horizon,” he said.
Those ongoing concerns about the economic outlook weighed on equities in Asia, despite gains on Wall Street.
Hong Kong was dragged by heavy losses in heavyweight HSBC, while Tokyo, Shanghai, Sydney, Seoul, Singapore and Wellington were also down. Concerns about the impact on demand from a possible recession or further banking upheaval weighed on oil prices, with both main contracts down more than one percent, having lost a similar amount Thursday.