Markets absorb bank-risk blows

Kia ora,

Welcome to Tuesday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.

I'm David Chaston and this is the international edition from Interest.co.nz.

And today we lead with news the value of bank stocks are being marked down sharply today, globally.

First up today, the drama over the failure of some American banks has all the spotlight. Globally, government bond yields fell sharply as investors pared bets of higher interest rates and looked for safety. The US 10-year Treasury yield fell to a five-week low of 3.5% and the 2-year yield lost nearly -50 bps to 4.05%, marking the largest three-day slump since 1987. In Germany, their benchmark 10-year yield fell nearly -30 bps to 2.17% and the UK Gilt was down to 3.27%.

Regulators are huddling again today, with the US Fed in an unscheduled meeting. Rumours are swirling about other regional US banks, including Republic Bank, a bank based in Kentucky. Their shares are among the hardest hit today. But apart from some localised pressure points, markets are generally calm. The US President is out emphasising the overall regulator responses underway to keep it that way.

In the UK, HSBC took over the local unit of SVB for UK£1. It now has to bolster its liquidity by UK£2 bln to absorb those assets.

The main fallout so far has been the building expectation that the US Fed will pare back its rate hike program designed to restrain inflation. Financial system stability has suddenly trumped inflation fighting.

In economic data news, American consumer inflation expectations for the year ahead fell sharply to 4.2% in February, the lowest in twenty one months. In the prior two months this expectation was 5%. Aiding the steady retreat has been both food and energy costs. Expectations for inflation three years ahead are anchored well below 3%. The same survey shows that consumers expect their labour markets to "improve".

Elsewhere, Indian consumer prices rose at a 6.4% rate in the year to February, little-changed from January. But the rate between January and February was only at a +2% annualised rate, so there are expectations inflation pressures will ease there in coming months.

The UST 10yr yield starts today at 3.53% and down -17 bps from this time yesterday. (Recall, its recent peak was 4.08% on March 3, 2023.) 

In our region, the devaluation of bank stocks has been sharp, a trend that started about six weeks ago. Over that period, ANZ, Westpac and NAB have all seen their share values fall -10%. CBA has seen a larger -14% fall. The current stresses took between -1% and -2% of that out yesterday alone (although CBA was only down -0.4% yesterday).

The price of gold will open today at US$1911 and up +US$43 from this time yesterday. It was last at this level in early February.

And oil prices start today down -US$1.50 at just over US$75/bbl in the US. The international Brent price is still just under US$81/bbl.

The Kiwi dollar is firmer, now at 62.3 USc and a full +1c higher than this time yesterday. Against the Aussie we are up slightly at 93.4 AUc and a new high for the year. Against the euro we are firm too at 58 euro cents. That puts the TWI-5 at 70.6 and up +50 bps.

The bitcoin price has raced higher today and is now at US$23,987 and up a remarkable +16.3% from this time yesterday. And volatility over the past 24 hours has been extreme at +/-9.6%.

You can find links to the articles mentioned today in our show notes.

And get more news affecting the economy in New Zealand from interest.co.nz.

Kia ora. I'm David Chaston and we’ll do this again tomorrow.