Asia Tracks Wall St Rally As Fed Decision Replaces Bank Worries

Global stock markets rallied in Asia on Wednesday, with a raft of government measures expected to ease the strain on the banking sector and bring much-needed calm after more than a week of turmoil.

Volatility keys allowed traders to focus on preparations for a policy decision by the US Federal Reserve, hoping that the latest jitters would prevent an expected sharp rise in interest rates.

Central bank borrowing costs have risen over the past year amid the latest crisis, which forced officials to halt a campaign to tighten monetary policy, with many observers predicting a series of cuts before the end of the year.

While a blow to the Fed's fight against high inflation, observers saw the move as an important step to strengthen stability and prevent further disruption of the financial sector.

U.S. and European markets rose at least 1% on Tuesday, paring Monday's gains, as investors backed support for borrowers from U.S. Treasury Secretary Janet Yellen following the collapse of two regional banks earlier this month.

The collapse of Silicon Valley Bank and Signature Bank prompted officials to promise that customers would not lose money to stop them fleeing to other businesses.

"Our intervention was necessary to protect the entire American banking system, and similar measures may be justified when small depository institutions are at risk of contamination," Yellen said at the American Bankers Association conference in Washington.

He added that the government is committed to ensuring stability and that "the public must have confidence in our banking system."

"This is a clear message that many officials are not taking this banking crisis lightly and are probably on alert for the next major disaster," said ONDA's Edward Moya.

The recovery in the United States and Europe spread to Asia, where banks and technology companies were among the biggest winners.

Hong Kong led the way with gains of more than 2% amid challenges faced by lenders HSBC and Standard Chartered, as well as e-commerce titans Alibaba and JD.com.

Tokyo rose sharply as investors returned from vacations, while Seoul, Singapore, Sydney and Taipei added more than one percent.

Shanghai, Wellington and Manila also took off.

National Australia Bank's Rodrigo Catril said: "The stimulus and stabilization measures taken by the authorities in recent days continue to have a positive effect."

The VIX "fear index" has seen its biggest two-day drop this year.

"Markets seem more comfortable with the idea that the authorities may have done enough to prevent a systemic banking crisis. Improved risk appetite has led to a shift in expectations for Fed and [European Central Bank] rate hikes."

Analysts are divided on whether to announce a 25 basis point hike or a pause to ease pressure on the banking system.

Citi Index's Matt Simpson said the Fed's game plan had been disrupted by the recent turmoil, adding that the post-meeting press conference could be an opportunity for "(Fed Chair) Jerome Powell to refine his message and shape market expectations."

"It's not uncommon to see markets change direction during a press conference, and the main thing to note is how his tone matched his last statement, which was really very upbeat."

Currency markets were little changed as traders awaited the Fed's decision, although the yen, pound and euro held on to recent gains against the dollar as they revised their government estimates - United.

Tokyo - Nikkei 225: +1.9% to 27,459.77 (pause)

HONG KONG - The Hang Seng index: rose 2.2% to 19,685.51.

Shanghai Composite: Up 0.5% to 3,272.80

EUR/USD: Up to $1.0775 instead of $1.0772 on Tuesday

Pound/dollar: to $1.2226 from $1.2218

EUR/GBP: Falling to 88.11p, down from 88.13p

USD/JPY: Up to ¥132.56 from ¥132.54

West Texas Intermediate: down 0.8% to $69.13 a barrel

North Sea Brent crude: fell 0.7% to $74.79 a barrel.

NEW YORK - Dow: Up 1.0% to 32,560.60 (close)

London - FTSE 100: Up 1.8% to 7,536.22 (close)

Is the stock near the bottom? | Watch Bloomberg 10/18/2022