Australia

Australian shares are positioned to decline today following losses across Europe and North America. Concerns about the stability of banks dragged financial stocks lower and sent investors running toward safer investments. Attention now turns toward the Federal Reserve’s March meeting.

ASX futures had fallen 98 points or 1.4% as of 7:00am on Saturday, indicating a loss at Monday’s open.

Wall Street veered lower on Friday at the close of a tumultuous week, marked by the unfolding crisis in the banking sector and the gathering storm clouds of a possible recession.

All three indices ended sharply lower, with financial stocks down the most among the major sectors of the S&P 500, which slid 1.1%. The Dow Jones closed 1.2% lower and the Nasdaq Composite shed 0.7%.

SVB Financial Group announced it would seek Chapter 11 bankruptcy protection, the latest development in an ongoing drama that began last week with the collapse of SVB and Signature Bank, which sparked fears of contagion throughout the global banking system.

In commodity markets, Brent crude oil lost 2.9% to $US72.55 a barrel while gold gained 3.1% to US$1,978.37.

Australian government bonds edged higher, as the 2 Year yield rose to 3.02% and the 10 Year increased to 3.39%. US Treasury notes continued to plunge, however, as spooked stock investors ran to bonds for safety. The 2 Year yield on US Treasury notes slipped to 3.82% while the 10 Year sunk to 3.39%.

The Australian dollar edged up to 67.01 US cents from its previous close of 66.54. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies, declined to 97.03.

Asia

Stocks in China and Hong Kong jumped on Friday, tracking gains in global markets after US banks moved to rescue embattled First Republic Bank. Investors also cheered signs of an economic recovery in China. The Shanghai Composite Index gained 0.7% while Hong Kong’s benchmark Hang Seng Index advanced 1.6%.

Asian markets extended a risk rally on Wall Street to end a tumultuous week that saw a brewing banking crisis send bond yields plunging. Large US banks on Thursday injected $30 billion in deposits into First Republic Bank, swooping in to rescue the lender. Foreign investors snapped up Chinese shares on Friday, with the overseas net buying via the Stock Connect surpassing 7 billion yuan (US$1 billion) and logging the biggest daily inflow since early February. This week’s overseas net buying totaled nearly 15 billion yuan (US$2.2 billion).

“Post last week’s less-encouraging NPC targets, investor sentiment has started to recover as macro data for January and February came in sanguine and confirmed that China’s strong growth rebound is on track,” Morgan Stanley analysts said in a note, adding that China’s recovery is on track and intact.

Hong Kong-listed shares of search engine giant Baidu surged 13.7%, recouping losses suffered a day earlier after the launch of its artificial intelligence-powered Ernie bot. Other tech and media stocks also rose. Information technology companies soared 3.1% and anime comic gaming firms surged 5.5%, while tech giants listed in Hong Kong added 4.4%.

Japanese stocks also ended higher, with the Nikkei Stock Average gaining 1.2%. Tobu Railway Co.Ltd. and Sony Corp. were among the day’s biggest gainers, advancing 4.4% and 3.5% respectively. Meanwhile, Taisei Corp. lost 8.1% and Nippon Sheet Glass declined 2.4%.

India’s benchmark Sensex index closed up 0.6% Friday. HCL Tech, UltraTech Cem., and Nestle India lifted the index into the green.

Europe

European stocks ended the week lower as concerns regarding the stability of the banking system took hold. The pan-European Stoxx Europe 600 and the German DAX both lost 1.3% on Friday while France’s CAC 40 shed 1.4%. The British FTSE 100 closed down 1.0%.

Despite efforts by other US banks to bolster First Republic, investors worried that panicked depositors could cause a massive liquidity crisis. Shares of First Republic continued to plunge Friday. Credit Suisse ended the week 26.1% in the red.

North America

Wall Street veered lower on Friday at the close of a tumultuous week, marked by the unfolding crisis in the banking sector and the gathering storm clouds of a possible recession.

All three indices ended sharply lower, with financial stocks down the most among the major sectors of the S&P 500, which slid 1.1%. The Dow Jones closed 1.2% lower and the Nasdaq Composite shed 0.7%.

SVB Financial Group announced it would seek Chapter 11 bankruptcy protection, the latest development in an ongoing drama that began last week with the collapse of SVB and Signature Bank, which sparked fears of contagion throughout the global banking system.

"It feels like it's been a month since Monday," said Joseph Sroka, chief investment officer at NovaPoint in Atlanta, who added, "there's always going to be a worry based on past experience that any time a financial institution is in trouble that it's systemic."

"I don't think there's a systemic problem in the sector," Sroka said. "The banks just have not kept up with the interest they need to offer to attract and maintain deposits."

Over the last two weeks, the S&P Banking index and the KBW Regional Banking index have both plunged by about 21%, their largest two-week drop since March 2020, when the COVID-19 pandemic shoved the economy into its steepest and most abrupt recession on record.

The day after surging on news of an unprecedented $30 billion rescue package from large financial institutions, First Republic Bank plunged 32.9% after the bank announced that it was suspending its dividend.

Among First Republic's peers, PacWest Bancorp fell 19% while Western Alliance slid 15.1%.

Investors will now turn their gaze to the Federal Reserve's two-day monetary policy meeting next week.

In view of recent developments in the banking sector and data suggesting a softening economy, investors have adjusted their expectations regarding the size and duration of the Fed's restrictive interest rate hikes.

At last glance, financial markets have priced in a 70.1% likelihood that the central bank will raise its key target rate by 25 basis points, and a 29.9% probability that it will let the current rate stand, according to CME's FedWatch tool.