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By Jamie McGeever, Columnist, Global Finance & Markets

Thursday, March 23, 2023

The Asian open on Thursday may hinge on which of the conflicting narratives thrown up by late U.S. trading on Wednesday investors choose to run with: the Fed’s ‘dovish hike’, or Treasury Secretary Janet Yellen’s remarks on the banking system.

Implied U.S. rates and Treasury bond yields fell sharply after the Fed raised rates by a quarter point and Chair Jerome Powell said policymakers had considered a pause in light of the recent turmoil in the domestic banking system.

But Wall Street ultimately took its cue from Yellen, who said the government “is not considering insuring all uninsured bank deposits”, something many analysts say would go a long way to preventing further crises.

U.S. Treasury Secretary Janet Yellen testifies before a Senate Appropriations Financial Services and General Government Subcommittee hearing on President Biden’s proposed budget request for the Department of the Treasury for fiscal year 2024, on Capitol Hill in Washington, U.S., March 22, 2023. REUTERS/Evelyn Hockstein

The three main U.S. indices, which had rallied during Powell’s press conference, reversed course and closed down 1.6%.

Powell, of course, banged the anti-inflation drum and said the central bank’s base case is for no rate cuts this year. Stocks didn’t like that much, but it was Yellen’s comments that slammed financials and ultimately the broader indices – U.S. financial stocks fell 3.7% and regional banks slumped 5.3%.

Powell’s press conference suggested the Fed is in a ‘wait and see mode’ regarding the impact from the anticipated tightening of credit standards on the economy and inflation. He said more than once that policymakers simply don’t know how the next few months will pan out.

That helps explain the dollar’s lurch lower in tandem with U.S. yields on Wednesday. But policymakers in Asia will remain vigilant, and may continue to lean toward tightening rather than pausing.

The central banks of the Philippines and Taiwan announce policy decisions on Thursday – the Philippine central bank is seen raising rates by 25 bps to 6.25%, and Taiwan’s is expected to keep its key rate on hold at 1.75%.

Inflation data from Singapore and Hong Kong are also on tap Thursday, while the Bank of England is set to follow the Fed and raise rates by a quarter point, to 4.25%.

Graphics are produced by Reuters.

Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

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