The squalls unleashed by Silicon Valley Bank’s failure and the government response are barely a week old. In crisis talks Sunday, UBS Group AG agreed to a government-brokered $3.3 billion deal to buy Credit Suisse Group AG. That hasn’t prevented finger pointing and the industry of lessons-learned swinging into full gear. Time to scrutinize another uncomfortable assumption: What is so special about the deadline of the Asian market open on Monday morning? The question is unfinished business from the last big banking blowup.
The race to have something announced, or strategically leaked, by early Sunday evening was a hallmark of the 2007-2009 period. Ben Bernanke, then Federal Reserve boss, considered making Before Asia Opens the title of his book on the period. Though that crisis came to engulf the world, the core of the problem was in the US. If authorities there didn’t take the lead who would? Asia is home to critical exporters, countries intricately tied to the American economy through trade and credit. Asian investors are significant holders of US assets. It’s also helpful to have households in America wake up to morning bulletins relaying initial market reaction. Assuming it’s positive of course. In that sense, it’s a litmus test — even if doesn’t last the full 24-hour cycle.
Sitting at my desk in Washington, where I was responsible for Bloomberg’s global economic news, I heard this recited weekend after weekend to the point where it almost became holy writ. For all their importance, however, financial markets in Asia aren’t about to go rogue. They get their lead from the US, and in times like these, the lead can come whenever it’s ready. It doesn’t have to be when Sydney or Tokyo traders sip their first latte of the morning.
Trading in Asia at the start of any week is usually dominated by developments in America the prior Friday or proclamations made over the DC weekend. This was no less true with the SVB denouement and the backstop for depositors announced Sunday, March 12, by the Federal Deposit Insurance Corp., the Treasury Department and the Fed.
In a world where decoupling between the US and China is a fashionable concept, the dependence of Asian markets on the US for direction is striking. If SVB hadn’t blown up, you can be reasonably confident trading in the region at the beginning of the week would have been all about the jobs report released on Friday, March 10. It’s often similar on weekdays: the pattern is set by Wall Street and whatever traders there respond to, be it inflation statistics from the Department of Labor or utterances by even fairly junior Fed officials.
Work to a deadline, even an artificial one, has some merit. It concentrates the mind and gives the sense of drop-dead timing often required to get agreement. Weekends offer a slight cooling off period. But Asian markets, when they open under such circumstances, will rarely take their cue from decisions and interventions anywhere other than the US, and occasionally Western Europe. This was the case on March 13. The installation of a new Chinese premier was an afterthought. The surprise retention of Beijing’s top economic managers was a barely a parenthetical. SVB was what everyone was talking about. Asian markets are more stage for US drama, less actors, production company or director.
The importance of US news in driving international trading isn’t a new phenomenon. America has deep and liquid capital markets, while the dollar is far and away the primary reserve currency. Rather than fade as the US share of global gross domestic product retreats, the greenback appears as insurmountable as ever. The foreign-exchange market has swollen to average $7.5 trillion a day, and the dollar was involved in about 88% of those trades worldwide, according to the Bank for International Settlements.
The dominance of macro-economic events in the US was underscored in a recent paper by Christoph E. Boehm, an assistant professor at the University of Texas in Austin and T. Niklas Kroner, an economist at the Fed. They examined the effects of data such as non-farm payrolls within a 30-minute window on major stock indexes in 27 countries from 1996 to 2019. The idea was to capture the response of foreign markets to US releases during real time. (By necessity, Asian markets were excluded from the study because they were closed.)
Their conclusion — that American news has a big impact on global markets while foreign news scarcely registers in the US — resonates. “There certainly was asymmetry,” Boehm told me. “For us, it came as a bit of a surprise because it was so extreme. We might have thought some relatively open economies could affect US markets. By and large, this wasn’t the case.”
This isn’t to say that Asian markets don’t respond to Asian news. The yen weakened significantly last year, forcing Tokyo to prop it up and in the process igniting a decent rally. The purchases happened late in the Japanese afternoon and were the big event in the FX universe that day. But by the next morning people had moved on. Chinese data can move the region’s markets during the day if, say, purchasing managers indexes surpass or fall short of forecasts. They are little noticed in New York. The rapid end of China’s Covid-Zero strategy in late 2022 ignited a rally in Asian stocks, but didn’t move the needle a lot on Wall Street.
There are instances when ructions do make a major splash. A botched devaluation of the yuan in 2015 sent shockwaves through capitalism and discouraged the Fed from pressing ahead with an interest-rate increase. The European Central Bank’s interest-rate hike Thursday in the face of concerns about regional lenders rippled through the market for US treasuries. They stand out as exceptions to the rule.
This isn’t to diminish the enormous growth in Asian economies the past few decades or the optimism executives exude about the opportunities. Money is sloshing around Singapore, where every second conversation seems to be about family offices flocking to the city-state and the boom in private-wealth management. Credit Suisse projected last year that by 2026, there will be almost 88 million people in the world with at least $1 million in wealth, up 40% from the prior survey. The number will grow faster in emerging economies, with China almost doubling its millionaire population, the forecasts show.
It is indicative of the growth of the monied class and geographic trends evident in its expansion. It doesn’t tell you a lot about what drives investing decisions on a daily basis. In 2019, I returned to the region after a long absence. I got to see what the open of trading during a crisis looked and felt like on the ground. Few people wanted to talk about, or react to, anything other than events in the US. What happened to decoupling and the narrative of US decline that’s not far beneath the surface?
We’ll have to live with the imbalance between Asia’s growing commercial footprint, particularly that of China and India, and the supremacy of the American financial and monetary system. “I do not see an alternative to a dollar-centric system, though that could change over the long run,” said Boehm. In the meantime, familiar lines about Asia’s inexorable rise do need a substantial footnote.
And for those drafting the next weekend rescue, Asia will be here for you no matter the time of day or week. Just get the deal right. Timing may count for a lot, but it isn’t everything. It’s still the Fed’s world. We just live in it.
More From Bloomberg Opinion:
• Somewhere in the Multiverse, SVB Could Be the BOJ: Reidy & Moss
• The Fed Has an Easy Fix to Avert Another Bank Crisis: Shuli Ren
• Silicon Valley Bank’s Swoon Should Scare Us All: Robert Burgess
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously, he was executive editor of Bloomberg News for economics.
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