Asian stocks projected relative calm Thursday after Treasury Secretary Janet Yellen rattled US bank shares and the Federal Reserve pushed back against bets for interest rate cuts this year.

An index of the region’s shares rose 0.9% as gauges in Hong Kong and mainland China climbed. Benchmarks in Japan and Australia trimmed losses and US futures moved to their session highs.

Weakness in the dollar, which extended its run of declines to a sixth day, was seen softening the blow in Asia from global banking turmoil, particularly in emerging markets.

Government bond yields in fell, with drops of less that 10 basis points in Australia and New Zealand following sharper moves down in rates on Treasuries on Wednesday. US yields were fractionally higher Thursday.

While markets are in a “higher volatility regime” these days with uncertainly over the outlook for rates and economic growth, a degree of moderation is possible Thursday, said John Bromhead, a strategist at Australia & New Zealand Banking Group. “I suspect now the major risk event is out of the way, risk-tone can improve through the day,” he said.

The tone in Asia was a sharp contrast that in the US on Wednesday, when traders got a double dose of stress that reversed an initial rally in shares following the Fed’s expected 25-basis-point rate hike. Yellen told lawmakers that the government wasn’t considering “blanket” deposit insurance to stabilize the banking system while Fed chief Jerome Powell said he was prepared to keep raising rates until inflation shows signs of cooling.

In a broad-based selloff, the S&P 500 dropped 1.7%. All 22 stocks in the KBW Bank Index retreated, with the measure of US financial heavyweights down almost 5%. Treasury two-year yields plunged 23 basis points and a dollar gauge retreated in its longest losing streak since April 2021.

Separately, investors were on tenterhooks awaiting another report from Hindenburg Research, the US short seller that targeted Gautam Adani’s group earlier this year. There were no details on the subject of the new report.

The swap market shows about a one-in-two chance that Fed officials will add another 25 basis points to their benchmark in May. Despite this and Powell’s guidance, expectations for cuts deepened, with the market suggesting that the effective fed funds rate will drop to around 4.2% in December.

“I would not expect the market to take these rate cuts out in the near term and could very well price in more cuts if the data deteriorates from here,” Matthew Hornbach, the global head of macro strategy at Morgan Stanley, told Bloomberg Television.

Powell himself, though, said in response to questioning that officials “just don’t” see cuts this year and that they will raise higher than expected if that is needed. “Rate cuts are not in our base case,” he said.

Elsewhere in markets, oil fell as investors weighed the developments at the Fed and digested a mixed snapshot of US supply and demand. Gold steadied while Bitcoin fluctuated.

  - Bloomberg