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TOKYO (AP) — Asian shares declined Tuesday, as investors around the world watched to see what's next following the second- and third-largest bank failures in U.S. history.
In Asia, direct exposure to the risks from the U.S. failures seemed slim, at least so far. Still, fears of contagion persisted, sending regional benchmarks lower across the region.
Japan's benchmark Nikkei 225 dropped nearly 2.0% to 27,286.87, extending losses from the day before. Australia's S&P/ASX 200 dipped 1.6% to 6,992.00. South Korea's Kospi fell 1.9% to 2,365.18. Hong Kong's Hang Seng fell 1.2% to 19,462.84. The Shanghai Composite declined 0.7% to 3,245.13.
“There is escalating tension in the global financial world; this is despite non-U.S. banks’ exposure to US regional banks being minimal, with the global systems being well capitalized and flush with liquidity,” Stephen Innes, managing partner at SPI Asset Management, said in a report.
“U.S. financial stress could lead banks of all stripes to retrench lending to the real economy and tighten broader financial conditions, amplifying risk to the broader markets.”
On Monday, Japan's chief government spokesman, Hirokazu Matsuno, told reporters that the impact on Japanese banks would likely be limited.
However, bank shares fell sharply Tuesday. MUFG fell 6.3%, Mizuho Financial Group sank 5.8% and Sumitomo Mitsui Financial Group’s shares dropped 6.2%.
Investors are worried that a relentless rise in interest rates meant to get inflation under control are approaching a tipping point and may be cracking the banking system.
On Wall Street, the S&P 500 dipped 0.2% to 3,855.76 after whipsaw trading, where it careened from an early loss of 1.4% to a midday gain of nearly that much. The Dow Jones Industrial Average fell 0.3% to 31,819.14, while the Nasdaq composite rose 0.4% to 11,188.84.
The U.S. government announced a plan late Sunday meant to shore up confidence in the banking industry following the collapses of Silicon Valley Bank and Signature Bank since Friday.
Huge banks, which have been repeatedly stress-tested by regulators following the 2008 financial crisis, weren't down as much. JPMorgan Chase fell 1.8%, and Bank of America dropped 5.8%.
Now, "depending on reactions in financial markets and eventual fallout on the overall economy, we wouldn’t rule out that the hiking cycle could even be over and that the next move by Fed officials may be lower not higher,” said Kevin Cummins, chief U.S. economist at NatWest.
Prices for Treasurys shot higher as investors sought safety and as their expectations grew for an easier Fed. That in turn sent their yields lower, The yield on the 10-year Treasury was steady at 3.56%, down from 3.70% late Friday. That’s a major move for the bond market.
In energy trading, benchmark U.S. crude lost 35 cents to $74.45 a barrel in electronic trading on the New York Mercantile Exchange. It fell $1.88 to $74.80 a barrel on Monday.
Brent crude, the international standard, lost 90 cents to $79.87 a barrel.
In currency trading, the U.S. dollar rose to 133.69 Japanese yen from 133.20 yen. The euro cost $1.0701 down from $1.0734.
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AP Business Writer Stan Choe contributed.