Stocks stuck, Aussie dlr surges after RBA surprise

Asian shares wobbled in cautious trade on Tuesday as investors kept their focus on US banks and a series of data releases and central bank meetings this week, which began with a surprise rate hike in Australia.

The Aussie dollar shot more than 1 percent higher against its US counterpart and the New Zealand dollar rose 0.5 percent in sympathy after the Reserve Bank of Australia delivered a 25 basis point hike, defying expectations it would stay on hold.

 

Three-year Aussie government bond yields also jumped, while Australian stocks (.AXJO) slipped 0.9 percent and investors' attention turned on what it may signal for the United States.

"One of the things that sticks out to me is that they're still saying they might need to increase interest rates," said Commonwealth Bank of Australia strategist Joe Capurso.

"So as well as the increase today, that's supporting the Aussie dollar," he said. That could unwind, he said, as there's a "reasonable chance" the Federal Reserve takes a similar approach at its meeting on Wednesday.

 

Elsewhere there were jitters at short tenors in the US Treasury market as the government's borrowing ceiling looms, and MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) was flat as concern swirls around US banks.

Mainland China markets were closed. Japan's Nikkei (.N225) hit a 16-month high, before backing off slightly, with the bank sector (.IBNKS.T) a drag.

The sale of First Republic Bank's (FRC.N) assets to JPMorgan Chase (JPM.N) resolved the third US bank failure in two months, but leaves markets anxious about the next shoes to drop, even if the initial response has been reasonably positive.

JPMorgan shares rose 2.1 percent overnight and chief executive Jamie Dimon told analysts: "This part of the crisis is over."

DEBT CEILING

 

Much of Europe returns from May Day holidays on Tuesday, with final activity surveys due, preliminary inflation figures and a survey of European bank lending that will be closely watched given recent stresses in the sector.

 

European futures rose 0.2 percent in Asia, while S&P 500 futures were flat. Rate hikes also loom, with interest-rate futures fully pricing a 25 bp rate rise in Europe on Thursday, with a chance of a larger rise, and pricing a 95 percent chance for a 25 bp hike from the Federal Reserve on Wednesday.

The contrast with Japan, where on Friday the central bank left settings ultra-easy, has had the yen under heavy pressure for days and though it relented it did not abate on Tuesday.

The yen hit an almost two-month low on the dollar at 138.78 and made a 14-1/2 year low at 151.42 per euro . It's trading at its lowest level on the Swiss franc in Refinitiv data stretching back four decades, and dropped about 1 percent on the surging Aussie on Tuesday .

The euro held at $1.0987.

US credit default swaps - which reflect insurance against a default - are illiquid but hitting records as brinkmanship pushes the US government near its borrowing limit.

Overnight, Treasury Secretary Janet Yellen said the Treasury might run out of money to cover obligations as soon as June 1.

One-month Treasury bill yields jumped about 16 bps in Asia and bid-offer spreads were wide.

"The next few weeks are going to be unpredictable," Goldman Sachs analysts said in a note," with uncertainty over the precise deadline not helping to focus lawmakers' minds.

"That could raise the risk that Congress does not lift the debt limit in time, which could result in missed payments but could also result in a short-term extension, in which case the exercise would repeat a few weeks or a few months later."