US and European stock markets fell on Friday as fears over the health of the banking system festered despite the latest efforts to shore up troubled lenders and tamp down contagion risks.
Wall Street opened lower following a rally the previous day while European markets fell into the red after starting the day in the green.
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“The negative disposition for the broader market has a familiar driver: worries about the state of the banking industry,” said market analyst Patrick O’Hare at Briefing.com.
Markets had rebounded after several Wall Street titans including JP Morgan, Bank of America and Citigroup stumped up $30 billion on Thursday to deposit into troubled US lender First Republic.
The move came as investors feared First Republic could suffer a run of withdrawals by customers worried it would follow US lenders Silicon Valley bank and Signature Bank, which went under last week and fuelled fears of another financial crisis.
But shares in First Republic fell about 21 percent as trading got underway on Friday.
Shares in Credit Suisse, which had rallied Thursday after the troubled Swiss bank tapped a $54 billion central bank lifeline, also fell again, dropping by 11 percent before clawing back some ground.
O’Hare said the market was unnerved by data showing that bank borrowing from the US Federal Reserve’s discount window hit a record high of approximately $153 billion for the week ending March 15, “exceeding anything seen during the financial crisis”.
The Fed’s discount window allows banks to quickly access funds, providing them with liquidity when customers withdraw more deposits than expected, and the record figure is an indication of stress in the sector.
“It is evident, then, that there will be a concentration of selling interest on the bank stocks when trading begins,” said O’Hare in a note to investors prior to the opening bell.
He said some investors are seeking refuge in the stocks of big companies, which has helped cushion the drop in the wider market.
The dollar fell against its major rivals, while oil prices retreated.
– Fed’s next move –
As the rollercoaster week ends, investors will focus next week on whether the US Federal Reserve will stick to its interest rate-hike policy to combat inflation.
Before the SVB crisis unfolded, there had been a widespread expectation the Fed would ramp up its tightening campaign and push on for as long as needed until it had quelled inflation.
But with SVB’s demise largely blamed on the sharp rise in borrowing costs — fuelling fears of a repeat at other banks — speculation has swirled that the Fed may stop hiking and maybe even cut rates to provide some stability.
However, the European Central Bank on Thursday stuck to its plan to lift rates by a half percentage point despite the turmoil.
Some analysts believe this increases the likelihood the Fed will also raise rates by half a percentage point.
SVB’s demise has been blamed on the losses it took after the value of its bond portfolio cratered due to the higher rates.
– Key figures around 1330 GMT –
London – FTSE 100: DOWN 0.7 percent at 7,361.61 points
Frankfurt – DAX: DOWN 1.0 percent at 14,823.35
Paris – CAC 40: DOWN 1.1 percent at 6,948.59
EURO STOXX 50: DOWN 0.9 percent at 4,080.50
New York – Dow: DOWN 0.4 percent at 32,129.21
Tokyo – Nikkei 225: UP 1.2 percent at 27,333.79 (close)
Hong Kong – Hang Seng Index: UP 1.6 percent at 19,518.59 (close)
Shanghai – Composite: UP 0.7 percent at 3,250.55 (close)
Euro/dollar: UP at $1.0631 from $1.0617 on Thursday
Pound/dollar: UP at $1.2146 from $1.2106
Euro/pound: DOWN at 87.52 pence from 87.62 pence
Dollar/yen: DOWN at 132.46. yen from 133.69 yen
Brent North Sea crude: DOWN 0.7 percent at $74.15 per barrel
West Texas Intermediate: DOWN 0.6 percent at $67.97 per barrel