(Bloomberg) — Stocks plummeted and Treasuries rallied as concerns over the health of the US banking system caused a sharp sell-off in global markets.
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Europe’s Stoxx 600 stock index fell more than 1.5%, with an index for bank stocks falling the most since June. Credit Suisse Group AG shares fell as much as 6.1% to a record low and HSBC Holdings Plc lost more than 5%.
Futures on the US S&P 500 shed about half a percent after the underlying benchmark hit a seven-week low on Thursday as bank stocks tumbled. As investors sought safety, government bond yields fell, with the two-year segment slipping to 4.75% and heading for its biggest two-day drop since last June.
The defeat came after Silvergate Capital Corp. collapsed as the crypto industry’s meltdown eroded its financial strength, SVB Financial Group plunged a record after a stock sale to erase losses. Their concerns highlight the impact of unrelenting Federal Reserve policy tightening on the financial sector as rising interest rates erode balance sheets. Key monthly US jobs data is still to be released on Friday, which could reset the course for US interest rates and the dollar.
“When market nerves were already stretched amid rising Fed interest rate expectations, news of California-based Silicon Valley Bank facing a liquidity crisis threw investors off their feet,” said Alvin Tan, an analyst at RBC Capital, in a statement to customers.
Money markets have already scaled back bets that the Fed would opt for a half-point hike at its March 21-22 meeting, at roughly an equal chance, having previously priced in a 75% probability. Data on Thursday showed the number of Americans filing for unemployment benefits unexpectedly rose to an all-time high this year.
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That set the stage for Friday’s monthly job report. Economists are forecasting a 225k rise in February payrolls, about half the blockbuster pace of January, and a weaker read could further tilt expectations to a quarter-point rise.
However, the Fed needs to position itself to “potentially raise half a percentage point very quickly” if payrolls data comes in hotter than expected, Danielle DiMartino Booth, chief executive officer and chief strategist at Quill Intelligence, said on Bloomberg Television.
In currency markets, the dollar was flat against a basket of currencies, while the yen weakened after the Bank of Japan kept monetary stance unchanged at Governor Haruhiko Kuroda’s latest policy meeting. The pound strengthened after data showing the UK economy recovered in January.
The shutdown of risk sentiment and the winding down of crypto-friendly Silvergate put Bitcoin on course for its worst week since November. A Bloomberg commodities index is down more than 4% this week as oil heads for its biggest weekly loss since early February.
Important events this week:
US nonfarm payrolls, unemployment rate, monthly budget statement, Friday
Some of the key movements in the markets:
The Stoxx Europe 600 was down 1.6% at 8:41 am London time
S&P 500 futures fell 0.6%
Nasdaq 100 futures down 0.3%
Futures on the Dow Jones Industrial Average fell 0.6%
The MSCI Asia Pacific Index fell 1.9%
The MSCI Emerging Markets Index fell 1.4%
The Bloomberg Dollar Spot Index was little changed
The euro rose 0.1% to $1.0592
The Japanese yen fell 0.2% to 136.44 per dollar
The offshore yuan was little changed at 6.9704 per dollar
The British pound rose 0.2% to $1.1950
Bitcoin fell 1.6% to $19,896.6
Ether fell 1.9% to $1,405.52
The 10-year government bond yield fell eight basis points to 3.82%
The 10-year German government bond yield fell 13 basis points to 2.51%
The 10-year UK government bond yield fell 12 basis points to 3.67%
Brent crude fell 1% to $80.78 a barrel
Spot gold rose 0.2% to $1,835.35 an ounce
This story was created with the support of Bloomberg Automation.
–Assisted by Rob Verdonck and Akshay Chinchalkar.
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