Japanese banks tanked on Friday and stocks globally extended a punishing selloff in the wake of U.S. President Donald Trump's sweeping tariffs, helping drive a rally in U.S. Treasuries and supporting gold near a record peak.
Benchmark 10-year U.S. Treasury yields slid under 4% and traders priced in more than 100 basis points of Federal Reserve rate cuts this year
QUOTES:
KYLE RODDA, SENIOR FINANCIAL MARKET ANALYST, CAPITAL.COM, MELBOURNE
"I think there's the concern that the trade war has killed Japanese reflation - so in short, it's an expression of the slowdown in Japan's economy expected to come about because of tariffs. Japanese yields have tumbled and the curve has flattened quite a bit, hurting the prospect for bank profits. Add the stronger currency in the air and you have a very negative mix for bank stocks."
FRED NEUMANN, CHIEF ASIA ECONOMIST, HSBC, HONG KONG
"The world has changed, and few economies reverberate these changes as strongly as in Japan. A weaker dollar, and threats of a global trade recession, put a real dent into Japan’s reflation prospects. As expectations of BOJ rate hikes are pushed out by the market, rates and equity markets inevitably respond to a new reality.
"The hurdle for rate hikes by Japan’s central bank have certainly risen on the back of tariff hikes by the U.S. However, the BOJ should not be counted out just yet, with lingering price pressures in Japan still keeping monetary officials in play."
SEAN TAYLOR, CIO, MATTHEWS ASIA, HONG KONG
"The decline in Japanese banks is more to do with the fact they had done well on hopes of BOJ hiking rates to 1% over the next 12 months - so two more hikes. But the decline in the U.S. 10-year and rate expectations recently makes the market worry it's harder to raise those rates now, so Japanese banks are factoring in no rate hike."
MICHAEL MAKDAD, SENIOR EQUITY ANALYST, MORNINGSTAR, SINGAPORE
"There is a bit of a binary scenario: either U.S. tariffs stay as announced, or the reality turns out to be not so extreme. In the former scenario, Japanese bank shares are not currently undervalued, as we could easily have an economic recession in Japan in that case, and no further rate hikes from the BOJ."
JON WITHAAR, SENIOR PORTFOLIO MANAGER, PICTET ASSET MANAGEMENT, SINGAPORE
"Banks in Japan are caught in the crossfire of waning rate hike expectations coinciding with the market coming to terms with increased chances of a global recession. Positioning across the market was quite long post the rash of regional bank consolidations we saw last month and sentiment was bullish, however this clearly has reversed very quickly.
"A key trade from here from our perspective is real estate and construction - both sectors have no direct tariff exposure, are seeing strong underlying conditions and benefit from rates being lower for longer. Many names across both sectors are improving shareholder returns, buying back stock and improving capital efficiency which is a theme that we like."
