Hi everyone! It’s me, Kate Stikhina. After the collapse of Silicon Valley Bank, investors became extremely cautious. Thus, the risk-off sentiment prevailed in the Asian stock markets.
Australian and New Zealand stocks saw the biggest losses on Tuesday morning as they are very sensitive to external factors. Japanese shares extended their 2-day losing streak.
Stock markets are now highly volatile. Woes in the financial sector made investors shift their attention to other risks. They are now less concerned about the Fed’s monetary policy. Although the Fed promptly created the Bank Term Funding Program, it did not calm investors' fears.
The BTFP will allow banks to sell government bonds and other high-quality liquid assets at par if they need to increase liquidity. This will enable depositors of Silicon Valley Bank and Signature Bank to keep 100% of their deposits.
However, if the Fed and the Treasury Department expected to soothe market worries with this step, they were wrong. The rescue plan for banks eligible for loans raises lots of questions. Analysts assume that there could be other banks that may face insolvency in the near future.
First Republic Bank may be the next on the list. Its shares have already fallen by 60%. Silicon Valley Bank was facing difficulties as its management made bad decisions and could not cope with the risks because of the Fed’s aggressive monetary policy.
The rapid intervention of the US government and regulators underscores that the monetary tightening cycle by the Fed and other central banks has put severe pressure on the financial system and global stock markets.
Market tensions are growing. Moreover, the US will release its CPI data today. It may lead to a new surge in volatility. While the Fed is in the blackout period before its meeting next week, traders are making predictions.
According to the FedWatch Tool, markets are pricing in a 55% chance of a 25 basis point rate hike. At the same time, there is a 45% probability of the rate hike by 50 basis points.
Last week, we witnessed a strange correlation between the US dollar, government bond yields, and stocks. Usually, when stock markets rise, the US dollar and government bonds decline, and vice versa. However, there were moments when this correlation did not work. Yet, Powell’s hawkish statement triggered volatility. The greenback climbed and stocks dropped.
The balance was tipped again by the demise of Silicon Valley Bank. All these assets slid down. In the Asian session, the US dollar made an attempt to recover, rising to 103.9 versus its main rivals.
It was moving in the intraday range of 103.7–104.0, maintaining a weak bullish bias. While the greenback is trading lower, many oil importers, for instance, China, are actively buying it. It somewhat spurred an increase in the US dollar.
Despite the recent long-term decline, the US currency remains strong. For comparison, a year ago, the US dollar index traded at only 99.
As the chart shows, the yen resumed an upward movement on Friday amid news on American banks. On Tuesday morning, the dollar/yen pair advanced to 113.9. Yet, the overall picture suggests a downtrend.
Its trajectory will be clearer after the release of CPI data. It appears that the yen is gaining momentum amid uncertainty in the US stock market. Its movements have only confirmed this assumption.
The yen stopped its correction earlier this week amid a decline in US government bond yields. In the Asian trade, the dollar/yen pair was trading in the range of 133.0–134.0.
Commodity currencies are down amid risk aversion. The Aussie serves as a liquid proxy of the yuan. The fall of the Chinese currency on Tuesday from an almost one-month high delivered another blow to the Aussie.
The yuan declined sharply today as Chinese companies took advantage of the weakness of the US dollar and made massive purchases of it. Apart from that, the Aussie dipped because of domestic economic news.
The Business Sentiment (NAB) sank to a 3-month low.

00:00 Introduction
00:31 Signs of panic in stock markets
01:10 Who is next?
02:08 Markets feverishly making predictions about the Fed's next decision
02:38 USDX
03:49 USD/JPY
04:33 Australian Business Confidence Index
05:23 AUD/USD
06:11 NZD/USD
06:48 Conclusion

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