Asian Markets Showing Signs Of Recovery In The Aftermath of SVB Collapse

Asian equities rose sharply on Wednesday, tracking Wall Street's relief rally and as U.S. inflation data revealed no unpleasant surprises, reinforcing expectations that the Federal Reserve will likely opt for a smaller rate hike when it meets next week.

Investors returned to stocks in US markets overnight as concerns about banking sector contagion eased following the failure of Silicon Valley Bank (SVB) last week.

MSCI's broadest index of Asia-Pacific shares outside Japan was 1.44 percent higher, after falling 1.7% on Tuesday following SVB's collapse, which triggered heavy selling by investors in the previous trading sessions.

The S&P/ASX 200 index in Australia rose 0.33 percent in early trading, while the Nikkei in Japan was mostly flat.

Chinese stocks gained 0.46 percent, while Hong Kong's Hang Seng index gained 1.4%.

Data on Wednesday showed China's industrial output in the first two months of 2023 rose 2.4 per cent from the year earlier, accelerating from a 1.3 per cent annual rise seen in December. A Reuters poll of analysts predicted a 2.6% increase, which the data fell just short of.

"It's clearly dominated by a relief rally rather than any inflation angst," said Robert Carnell, regional head of research, Asia Pacific at ING.

"I suppose what we've got is the banking sector in the United States returning to stability, with depositors getting a fairly clear signal that they won't lose out."

Investors were also relieved after the February U.S. inflation report showed consumer prices rising by 0.4%, with a year-on-year gain of 6% - in line with analyst expectations - as there had been concerns that stronger-than-expected data would lead the Fed to pursue jumbo-sized hikes to combat inflation.

Markets were bracing for the return of large Fed hikes as recently as last week, but the rapid collapse of SVB has changed those expectations, with the market pricing in an 80% chance of a 25 basis point hike next week.

"It appears to be the anticipated 50 basis point move for this month's meeting, especially after Powell's remarks to the Senate Banking Committee. Nobody expects that any longer "Carnell stated.

After sharp declines at the start of the week, US Treasury yields extended gains into Asian hours. The 10-year Treasury note yield rose 3.8 basis points to 3.674 percent.

The two-year US Treasury yield, which moves in lockstep with interest rate expectations, was up 6.9 basis points at 4.294 percent, but still well below last week's peak of 5.084 percent.

The dollar index, which measures the US currency against six rivals, remained unchanged at 103.64, while the euro remained unchanged at $1.0732.

The Japanese yen fell 0.8% to 134.30 per dollar, while the pound was last trading at $1.2157, down 0.1% on the day.

US crude was up 1.07 percent to $72.09 per barrel, while Brent was up 0.92 percent to $78.16 per barrel.

Gold prices were volatile, with spot gold rising 0.1% to $1,904.11 per ounce.

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