European and Asian stocks wobbled after a sell-off in US bank stocks
Shares in Europe and Asia fell at the open on Friday as fears over the health of banks’ bond portfolios added to investor jitters ahead of the release of key US economic data.
The regional Stoxx 600 fell 1.6 percent, the German Dax fell 1.8 percent, and the French Cac 40 fell 1.9 percent. London’s FTSE 100 fell 1.6 percent. European banks were the most affected, the Stoxx bank index fell 4.8 percent.
In Asia, Hong Kong’s Hang Seng index fell by 2.8 percent, China’s CSI 300 by 1.3 percent, South Korea’s Kospi by 1 percent, and Japan’s Topix by 1.9 percent.
The moves followed a sharp sell-off on Wall Street on Thursday as investors were spooked by the struggles of Silicon Valley Bank, a technology-focused lender.
SVB shares fell 60 percent on Thursday after it launched a $2.25 billion share sale to shore up its balance sheet. The losses raise concerns about potential risks to the large bond portfolios of U.S. banks, which at the height of the pandemic were invested in long-dated securities such as Treasury bills. The sharp rise in interest rates over the past year has curbed the industry’s profitability.
“[Silicon Valley Bank] that’s not the problem in itself, because it can be solved with deposit insurance or a bailout, so it’s not insurmountable,” said John Roe, head of multi-asset funds at Legal & General Investment Management. “But it’s a reminder that if you change conditions very quickly, you can cause problems, and maybe for the Federal Reserve, when in doubt, go more slowly. [with rate rises].”
The shares of the largest European banks suffered the most, Deutsche Bank lost 8.3 percent, ING 5.2 percent, Société Générale 5.4 percent, and Virgin Money 4.5 percent.
Investors’ nerves were also tested by the Fed’s comments that it would be ready to accelerate the pace of interest rate hikes if the American economy and inflation did not cool down. Traders awaited crucial non-farm payrolls and unemployment data on Friday to see if the economy was showing signs of cooling.
Last month, the economy added a surprising 517,000 jobs and the unemployment rate was 3.4 percent, the lowest level since May 1969.
Lou Brien, economic strategist at DRW Trading Group in Chicago, noted that the Fed has a long history of easing policy when unemployment rises. “There is a situation where we will see the Fed become more aggressive if the data is stronger than expected or if the unemployment rate rises this time and the Fed does not act. [soon]then it’s even more worrying – you’re losing your head and your tail to the market.”
Dickie Wong, director of research at Kingston Securities in Hong Kong, said weaker-than-expected earnings at Chinese e-commerce company JD.com, which said on Thursday that revenue growth slowed late last year, also prompting a sell-off. -in parts of the tech sector in Hong Kong.
Futures tracking the blue-chip S&P 500 fell 0.7 percent, while contracts tracking the tech-heavy Nasdaq fell 0.4 percent. The financial sub-index of the S&P 500 lost 3.9 percent on Thursday.
US Treasuries strengthened, the yield on the 10-year bond, which moves inversely with the exchange rate, decreased by 0.1 percentage point to 3.83 percent after a 5 basis point decrease the previous day. Two-year contracts, which are more sensitive to monetary policy, decreased by 0.1 percentage point to 4.8 percent.
The dollar index, which measures the greenback against a basket of six similar currencies, was unchanged. The euro was unchanged and the British pound strengthened by 0.1 percent against the dollar.
The price of Brent crude fell 0.9 percent to $80.88 a barrel, while the US equivalent of WTI fell 1.2 percent to $74.83.
Additional reporting by Kana Inagaki in Tokyo, Kaye Wiggins in Hong Kong and Jennifer Hughes in New York