Market Overview

ASX futures were pointing 67 points or 1% higher as of 8:00am on Wednesday, pointing to a gain at the open.

Shares in the US climbed Tuesday as investors hoped that financial sector distress could remain contained. The S&P 500 rose 1.7%, the Dow Jones Industrial Average added 1.1% and the tech-centric Nasdaq Composite jumped 2.1%.

Trading steadied compared with Monday's stormy session, which brought a deep rout for bank stocks and a rally for government bonds. Over the past week, the collapse of Silicon Valley Bank and the shutdowns of Signature Bank and Silvergate Capital heaped new fears of financial strain on top of investors' yearlong preoccupation with inflation.

As the anxiety rippling through the banking sector calmed, investors reversed some of their more dire bets from a day earlier. Bank stocks recovered sharply, leading the S&P 500's rise. First Republic Bank, which came under pressure over the weekend, climbed 23%. Charles Schwab gained 12% and KeyCorp was up 5.8%. Zions Bancorp, which has also faced investor scrutiny, fell 4.3% after rising earlier in the day.

In commodity markets, Brent crude oil plunged 4.6% to $US77.07 a barrel while gold edged down 0.4% to US$1,906.10.

Australian government bonds fell, with the 2 Year yield down to 3.09% and the 10 Year lower at 3.45%. Yields on US Treasury notes dove as investors lost appetite for risk following Silicon Valley Bank’s collapse. The 2 Year yield plunged to 4.20% while the 10 Year yield fell to 3.64%.

The Australian dollar climbed to 66.83 US cents from its previous close of 66.64. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies, edged up to 96.99.

Asia

Chinese shares ended lower, tracking declines among other Asian equities, amid contagion worries following the failure of Silicon Valley Bank. Local banking shares fell on spillover negative sentiment. China Merchants Bank dropped 1.3% and Ping An Bank declined 1.4%. Auto-related stocks pared earlier losses after Elon Musk and BYD Co. denied reports that Tesla is ending cooperation on battery supplies with BYD. BYD shares ended 0.2% lower, narrowing morning losses. Chip makers outperformed. Semiconductor Manufacturing International Corp. ended 10.1% higher. The benchmark Shanghai Composite Index dropped 0.7% to 3245.31. The Shenzhen Composite Index declined 1.0% and the ChiNext Price Index fell 0.6%.

Hong Kong's benchmark Hang Seng Index ended 2.3% lower at 19247.96, pulling back from Monday's rally and tracking broad declines among other Asian equities. Banking shares and insurance companies also fell. HSBC dropped 4.7%, the biggest one-day decline since October, after the bank said it would buy SVB's UK business on Monday. Standard Chartered fell 7.2%, its biggest retreat in a year, while China Life Insurance Co. shed 4.1%. Property stocks also weighed on the market. Shares of Jingrui Holdings slumped 38% on the first day of trading in more than nine months, after the property developer filed long-delayed, sluggish earnings. The Hang Seng Mainland Properties Index slipped 3.4%.

In Japan, the Nikkei Stock Average fell 2.2% to 27222.04, posting its biggest percentage loss since Dec. 20, as government bond yields dropped sharply in the wake of Silicon Valley Bank's collapse. Mitsubishi UFJ Financial Group slumped 8.6% and Dai-ichi Life Holdings lost 7.3% as prospects dimmed for the Bank of Japan to change its ultra-low interest rate policy.

India's benchmark Sensex index closed 0.6% lower at 57900.19 amid negative global cues and concerns about the fallout from Silicon Valley Bank's collapse, ICICI Securities analysts said in a note. Declines were seen across sectors. Mahindra & Mahindra was 2.9% lower, Tata Consultancy Services fell 2.0% and Bajaj Finance declined 1.9%. Gainers included Titan Co., which added 0.9%.

Europe

European stocks closed higher amid speculation that the US Federal Reserve will take a more dovish approach to interest rates following the collapse of US tech-lender Silicon Valley Bank. The pan-European Stoxx Europe 600 added 1.5%, the German DAX gained 1.8%, and the French CAC 40 leaped 1.9%.

"We now expect the FOMC to pause at its March 21-22 meeting because we think Fed officials will worry that another interest rate hike could be counterproductive to policymakers' efforts to shore up the financial system," Goldman Sachs analysts wrote. "Whilst we agree more tightening is likely needed to address inflation if financial stability concerns abate, we think Fed officials are likely to prioritize financial stability for now."

The UK’s FTSE 100 index closed up 1.2% on Tuesday as the continued fall in US inflation eased market concerns about further interest rate hikes. "Given that expectations have been ratcheted back for interest rate increases amid concerns the current rate hiking cycle is starting to break things in the financial system, the markets, the Federal Reserve and politicians will be desperate to see an easing of inflationary pressures," AJ Bell analyst Russ Mould said in a note.

Rolls-Royce, who has confirmed it would build the nuclear reactors for Australia's first nuclear-powered submarines, was the day's biggest riser, up 7%. Ocado and Hargreaves Lansdown both climbed 4%. Fresnillo was down 1.5% as the session's biggest faller, followed by National Grid and Imperial Brands, both down 0.5%.

North America

Shares in the US climbed Tuesday as investors hoped that financial sector distress could remain contained. The S&P 500 rose 1.7%, the Dow Jones Industrial Average added 1.1% and the tech-centric Nasdaq Composite jumped 2.1%.

Trading steadied compared with Monday's stormy session, which brought a deep rout for bank stocks and a rally for government bonds. Over the past week, the collapse of Silicon Valley Bank and the shutdowns of Signature Bank and Silvergate Capital heaped new fears of financial strain on top of investors' yearlong preoccupation with inflation.

As the anxiety rippling through the banking sector calmed, investors reversed some of their more dire bets from a day earlier. Bank stocks recovered sharply, leading the S&P 500's rise. First Republic Bank, which came under pressure over the weekend, climbed 23%. Charles Schwab gained 12% and KeyCorp was up 5.8%. Zions Bancorp, which has also faced investor scrutiny, fell 4.3% after rising earlier in the day.

On Monday, the bond market had been awash in fear that bank distress would force the Fed to soften its plans for continued interest rate increases, despite inflation still being above target. A flight to the safety of government debt sent the 2 Year Treasury note's yield to a historic decline. The KBW Bank index tumbled 12% as traders worried turmoil would spread among financial institutions.

"The action in regional banks was certainly concerning, but at this point it seems limited to a handful of unique names," said Michael Sheldon, chief investment officer at RDM Financial. Still, he added, further shocks cannot be ruled out.

The relative calm boosted bond traders' confidence that in its meeting next week, the Fed may be able to stick to its guns in its battle against inflation. Consumer-price-index (CPI) data out Tuesday showed that headline prices rose by 6% annually in February, cooling for an eighth consecutive month.

Cindy Beaulieu, chair of asset manager Conning's investment policy committee, said that barring additional bank distress, her team expects a quarter-percentage-point rate increase following the Fed's meeting next week.

United Airlines stock fell 6.6% after the Chicago-based carrier warned that it expects a Q1 loss. Shares of Facebook parent Meta Platforms climbed 5.8% after the company said it would cut an additional 10,000 jobs.