SYDNEY: Asian shares followed US stock futures higher on Monday (Mar 27) on hopes authorities were working to ring-fence stress in the global banking system, even as the cost of insuring against default neared dangerous levels.
Helping nerves were reports First Citizens BancShares was in advanced talks to acquire Silicon Valley Bank from the Federal Deposit Insurance.
S&P 500 futures firmed 0.5 per cent in early trade while Nasdaq futures added 0.4 per cent.
MSCI’s broadest index of Asia-Pacific shares outside Japan edged up 0.1 per cent, with trading cautious. Japan’s Nikkei gained 0.1 per cent and South Korea 0.2 per cent.
The mood remained jittery after shares in Deutsche Bank fell 8.5 per cent on Friday and the cost of insuring its bonds against the risk of default jumped sharply, along with the credit default swaps (CDS) of many other banks.
“The current level of credit default swaps for European banks is just a little lower than it was during the height of the European financial crisis in 2013,” noted Naeem Aslam Chief Investment Officer at
Zaye Capital Markets.
“If these CDS do not normalise, it is highly likely stock market may continue to suffer for many days.”
Over in the United States, depositors have been fleeing smaller banks for their larger cousins or to money market funds. Flows to money market funds have risen by more than US$300 billion in the past month to a record atop US$5.1 trillion.
Minneapolis Fed President Neel Kashkari on Sunday said officials were watching “very, very closely” to see if the banking stress led to a credit crunch that threatened to tip the economy into recession.
Source: Reuters
