Hong Kong: Asian stocks and the US dollar fell while Treasuries rose on Friday after talks over a $700 billion plan to save the financial system hit problems and the biggest ever US bank failure dashed hopes for a quick recovery.
JPMorgan Chase & Co bought certain Washington Mutual Inc assets for $1.9 billion after the largest US savings and loan was closed overnight by a US regulator.
The deal, the latest in the last few weeks that have shaken up the financial sector, showed how unstable the bank industry is and why stakes in agreement on the bailout plan are so high.
The US dollar weakened against the yen and Swiss franc, two currencies associated with stability, as a bipartisan deal to get what is called the Troubled Assets Relief Program turned into a law may have to wait until at least the weekend.
The dollar was down 0.7% against the yen at 105.70 yen and off 0.5% against the Swiss franc at 1.0834 francs.
The euro was up 0.3% to $1.4660 about two cents away from a one-month high hit on Monday.
US Treasury debt prices rose, with the most prominent gains in long-maturity bonds. The 10-year note rose 16/32 in prices, pushing down the yield to 3.805% from 3.84 % late in New York.
The yield on the 3-month bill slipped two basis points to 0.75% as investors continued to pile into the very short-end of the market in search of liquidity and safety.
Stress in Asia markets
Money markets have stabilised somewhat but lending between banks remained sluggish and confidence low. The spread of 3-month eurodollar rates over 3-month US Treasury bill yields, also known as the TED spread widened a bit from late Thursday to 275 basis points, but is lower on the week.
The spread is used as a gauge of risk aversion and tightness in short-term lending.
Short-term US dollar borrowing rates among banks have been relatively stable this week after a series of currency swaps were set up with the Federal Reserve and persistent liquidity injections.
However, money markets across Asia showed evidence of increasing stress. In Singapore, 3-month interbank rates jumped to 3.77% the highest since January 2008. Hong Kong’s 3-month interbank rates eased slightly to 3.39% after hitting a 2008 high on Thursday of 3.80%.
Equity markets reflected little conviction ahead of further developments in Washington.
Japan’s Nikkei share average was down 1.3% and has traded in a very narrow range this week.
The MSCI index of Asia-Pacific stocks outside of Japan was down 1.8% and on track for a fourth consecutive week of declines.
Hong Kong’s Hang Seng index fell 1.5% with shares of Ping An Insurance, China’s second-largest insurer, falling 10%.
US stock market futures extended a decline after a late-night White House session between Treasury Secretary Hank Paulson and congressional leaders ended in partisan gridlock. The S&P 500 future was down 1.5%.
Gold climbed 0.7% to $881.65 an ounce, but it remained around $28 below a seven-week high hit on Tuesday.
The JPMorgan purchase of WaMu assets cleared away some of the risk that a failing bank could drag others down with it but bickering over the financial bailout in Washington only worsened a sense of dread about the economic outlook.