Asia open: Oil prices and bank stock nexus

After a turbulent week and now sitting tight ahead of crucial updates on U.S. inflation on Wednesday, investors took advantage of the relative calm for a well-deserved breather on Monday.

Likewise, Asia is off to a relatively serene start ahead of China's April trade data release and U.S. inflation reports later this week.

While Banking-sector stress is a top vulnerability facing the U.S. financial system, but keeping risk sentiment on the steady and narrow path, the Fed's latest loan officer survey shows that the net percentage of banks tightening standards was similar to stress levels during the early 90s and early 2000s but still well below GFC and pandemic levels.

The White House will meet with Congressional leaders on Tuesday to “kick off” negotiations. Expect noisy headlines and political posturing this week but very little in the way of a clear path to a solution. Given the blustery headline conditions, expect the boat to rock some.

Bank stocks continue establishing a keen nexus for oil prices. After all, solid financial markets and strong institutions enhance capital allocation through broader markets and drive energy demand.

The sharpest oil price drops have coincided with rising fears that regional banking stress will push the US into recession. Statistically, US banking stress—proxied using US bank equity prices— explains much of the daily Brent price action over the last few months.