European and Asian equities fell at the open on Friday as worries about the health of banks’ bond portfolios added to investor jitters ahead of the release of key US economic data.
The Stoxx 600 in the regions fell 1.6 percent, Germany’s Dax fell 1.8 percent and France’s Cac 40 fell 1.9 percent. London’s FTSE 100 fell 1.6 percent. European banks were hit hardest, with the Stoxx bank index down 4.8 percent.
In Asia, Hong Kong’s Hang Seng index fell 2.8 percent, China’s CSI 300 fell 1.3 percent, South Korea’s Kospi fell 1 percent and Japan’s Topix lost 1.9 percent.
The move followed a sharp sell-off on Wall Street on Thursday as investors feared difficulties at Silicon Valley Bank, a technology-focused lender.
SVB shares fell 60 per cent on Thursday after it launched a $2.25bn share sale to shore up its balance sheet. The losses raised concerns about potential risks to the large bond portfolios held by U.S. banks, which invest their deposits into long-dated securities like Treasuries during the pandemic. A sharp rise in interest rates in the past year has squeezed the profitability of the industry.
“[Silicon Valley Bank] is not a problem in itself, because it can be solved with deposit insurance or guarantees, so it cannot be solved,” said John Roe, head of multi-asset funds at Legal & General Investment Management. “But it is a reminder that if you change the situation quickly, you can create problems , and perhaps for the Federal Reserve, if in doubt, to be slower. [with rate rises].”
Shares of major European banks were hardest hit, with Deutsche Bank down 8.3 percent, ING down 5.2 percent, Société Générale down 5.4 percent and Virgin Money down 4.5 percent.
Investors’ nerves have also been tested by comments from the Fed that it will be prepared to reaccelerate the pace of interest rate increases if the US economy and inflation do not cool down. Traders are looking ahead to important monthly non-farm payrolls and unemployment data on Friday, to see if the economy is showing signs of cooling.
Last month, the economy added a surprising 517,000 and unemployment was 3.4 percent, the lowest rate since May 1969.
Lou Brien, an economic strategist at DRW Trading Group in Chicago, noted that the Fed has a long history of acting to ease policy when unemployment rises. “You have this situation where we will see the Fed become more aggressive if the data is stronger than anticipated, or if this time the unemployment rate rises and the Fed doesn’t act. [soon]then more disturbing – the head is missing, the tail is missing for the market.
Dickie Wong, executive director of research at Kingston Securities in Hong Kong, said worse-than-expected earnings from JD.com, a Chinese e-commerce company that on Thursday said revenue growth had slowed at the end of last year, also prompted the sell-off. . -death in part of the tech sector in Hong Kong.
Futures tracking the blue-chip S&P 500 fell 0.7 percent, while the tech-heavy Nasdaq tracking contract fell 0.4 percent. The S&P 500 financial sub-index lost 3.9 percent on Thursday.
US Treasuries gained, with the yield on the 10-year note, which moved inversely to the price, declined 0.1 percentage points to 3.83 percent, after dropping 5 basis points the previous day. The two-year contract, which is more sensitive to monetary policy, fell 0.1 percentage point to 4.8 percent.
The dollar index, which measures the greenback against a basket of six peer currencies, was flat. The euro was flat and sterling rose 0.1 percent, both against the dollar.
Brent crude fell 0.9 percent to $80.88 a barrel, while WTI, the U.S. equivalent, 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