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US stock markets were dragged down by a renewed slide in bank shares on Friday, as investors continued to worry that the crisis at tech-focused Silicon Valley Bank could be a sign of broader woes in the sector.
The S&P 500 fell almost 1 per cent in early trade while the Nasdaq Composite slid 1.3 per cent.
Wall Street had earlier been poised to open higher after data showed the breakneck pace of US jobs growth eased in February and unemployment unexpectedly picked up slightly.
But the gains for futures were quickly overwhelmed as bank stocks extended the previous session’s heavy declines at the open.
Despite several analysts’ assurances that tech-focused SVB was an outlier, the widely watched KBW US banking index fell 6 per cent in early trade. Bank of America was down 5 per cent although JPMorgan Chase, the largest US bank by assets, was just 1 per cent lower.
SVB this week announced a $1.8bn loss on the sale of a $21bn portfolio of bonds to help bolster its capital. It also launched plans to raise about $2bn in fresh capital, but its shares more than halved on Thursday following the news.
The monthly labour market data showed the US economy added new jobs more quickly than expected with non-farm payrolls rising by 311,000 in February, far above market expectations of 210,000. However, investors focused on a separate survey which reported a larger than forecast rise in the unemployment rate to 3.6 per cent, which could ease the pressure on the Federal Reserve to reaccelerate its efforts to raise interest rates. Following the figures, traders saw a quarter percentage point rise as the most likely outcome at this month’s Fed meeting. Earlier in the week markets were leaning towards a larger half-point increase.
BofA analysts said apart from the headline payrolls number, the data was softer than expected. “As a result, we maintain our view that the Fed will raise its policy rate by [a quarter-point] in March to 4.75-5.0%, though it remains a close call,” they added.
US Treasuries gained, with the yield on the 10-year note declining 0.18 percentage points to 3.73 per cent. The yield on the two-year benchmark, which is more sensitive to interest rates, fell 0.26 percentage points to 4.64 per cent. Yields fall when the price of debt rises.
The dollar index, which measures the greenback against a basket of six peer currencies, fell 0.9 per cent.
European markets also fell, following Thursday’s declines in the US.
The region-wide Stoxx 600 was down 1.5 per cent, hit by falls in bank stocks such as Deutsche Bank and Société Générale. The Stoxx bank index lost 4.6 per cent, its worst one-day performance since last June. London’s bank-heavy FTSE 100 was down 1.8 per cent.
SVB’s losses shifted investor attention to the potential risks in the large portfolios of bonds held by banks, which invest deposits into long-dated securities such as Treasuries. The prices of those assets tumbled in last year’s global bond market rout, meaning banks would have large losses on their holdings if they were forced to sell.
In Asia, Hong Kong’s Hang Seng index was down 3 per cent, China’s CSI 300 shed 1.3 per cent, South Korea’s Kospi declined 1 per cent and Japan’s Topix lost 1.9 per cent.
“An earthquake in Silicon Valley led to aftershock on Wall Street and the tremors could still be felt in London on Friday morning,” said Russ Mould, investment director at AJ Bell, a UK investment platform. “Lots of banks hold large portfolios of bonds and rising interest rates make these less valuable — the SVB situation is a reminder that many institutions are sitting on large unrealised losses on their fixed-income holdings.”
Yields on European sovereign debt fell, with 10-year German Bunds falling 0.19 percentage points to 2.45 per cent.
The yield on 10-year UK government bonds fell 0.19 percentage points to 3.58 per cent after UK gross domestic product came in stronger than expected, with year-over-year growth flat, compared with expectations of a 0.2 per cent fall.
Brent crude rose 0.2 per cent to $81.75 per barrel.
Additional reporting by Kana Inagaki in Tokyo, Kaye Wiggins in Hong Kong and Philip Stafford in London
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