HONG KONG - Asian markets bounced Wednesday as concerns about contagion from the collapse of two US regional lenders eased while investors turned their attention back to next week's Federal Reserve interest rate decision.
Banks rallied in early exchanges after taking a battering the previous two days in reaction to the demise of Silicon Valley Bank and Signature Bank at the weekend, which were the biggest casualties since the global financial crisis.
But investor worries were soothed by the swift response from US authorities to pledge all depositors would get their cash and that other lenders would be given support.
The run on deposits at SVB and Signature -- as well as crypto bank Silvergate Capital, which went under earlier in March -- led ratings agency Moody's to cut its outlook for the US banking system to negative from stable.
Still, the mood on trading floors was less fraught than at the start of the week, with banks enjoying a much-needed lift.
Japan's Sumitomo Mistui Financial gained more than three percent and Mitsubishi UFJ Financial put on almost five percent, while South Korea's Hana Financial Group was up more than two percent. HSBC gained more than three percent.
On broader markets, Asia tracked a surge on Wall Street that was led by banks, though they pared morning rallies.
Hong Kong, Singapore, Seoul, Taipei and Manila all put on more than one percent, while Bangkok was more than two percent higher.
Shanghai, Sydney, Mumbai and Wellington were also up, while Tokyo and Jakarta were flat.
However, European markets were unable to build on Tuesday's big gains, with London, Paris and Frankfurt falling at the open.
Traders offered little reaction to data showing Chinese retail sales rebounded in January-February thanks to the lifting of zero-Covid restrictions and as the country celebrated Lunar New Year.
EYES ON THE FED
With the temperature over US banking lowered, traders were able to turn their attention back to inflation and the Federal Reserve's plans for interest rates.
With the sharp rise in borrowing costs said to have helped cause the SVB crisis, the Fed has come under pressure not to pile any more misery on other lenders with another round of big hikes.
Forecasts last week were for a 50-basis-point increase on March 22, but traders have now lowered their bets to 25 points. Japan's Nomura even suggested it could announce a cut.
Data Tuesday showing US consumer prices rose six percent last month -- in line with forecasts and a further slowdown but still way above the Fed target -- did little to dissuade those expectations.
However, there is a feeling the bank will not go as high as thought last week.
"Policymakers may still feel forced to press pause on rates, despite evidence the hot inflation is still a risk, unwilling to be blamed for making a bad situation worse," said Hargreaves Lansdown's Susannah Streeter.
"While smaller banks remain under pressure, there are concerns that bigger banks could become more risk averse in lending, which could dip the economy into a sharper downturn."
And OANDA's Edward Moya added: "Obviously, given the market turbulence over the past week, it is no surprise that expectations for the (Fed) meeting on March 22 are all over the place, but Nomura's call might be a bit of an overreaction to the news that came out over the weekend.
"Many banks have abandoned their rate hike calls and are expecting the Fed to pause."
The more upbeat mood on trading floors was also providing support to oil prices, which have been battered by concerns of a possible recession in light of the SVB upheaval.
Both main contracts dived more than four percent Tuesday, but they enjoyed gains of more than one percent Wednesday.
"Oil markets are looking straight into that recession tunnel as energy traders draw a straight line to prior bank sector-driven recessions," said SPI Asset Management's Stephen Innes.
"Especially the 2008 financial crisis, which has similar overtones to the current financial tumult and when oil tanked."
Key figures around 0820 GMT
Tokyo - Nikkei 225: FLAT at 27,229.48 (close)
Hong Kong - Hang Seng Index: UP 1.5 percent at 19,539.87 (close)
Shanghai - Composite: UP 0.6 percent at 3,263.21 (close)
London - FTSE 100: DOWN 0.4 percent at 7,607.83
Dollar/yen: UP at 135.01 yen from 134.20 yen on Tuesday
Euro/dollar: DOWN at $1.0731 from $1.0735
Pound/dollar: DOWN at $1.2146 from $1.2156
Euro/pound: UP at 88.35 pence from 88.29 pence
West Texas Intermediate: UP 1.3 percent at $72.23 per barrel
Brent North Sea crude: UP 1.2 percent at $78.35 per barrel
New York - Dow: UP 1.1 percent at 32,155.40 (close)