Markets Briefing - European and Asian stocks rattled after sell-off in US bank shares

 Hong Kong’s Hang Seng index was down 3% on Friday © AP

https://www.ft.com/content/82b70f3e-092f-449f-b32d-38b3dc66e
Markets Briefing  

" European and Asian stocks rattled after sell-off in US bank shares Fears over health of banks’ bond portfolios compound nervousness ahead of publication of key US economic dataFT.com

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Martha Muir in London and William Langley in Hong Kong 

51 MINUTES AGO 

"European and Asian equities tumbled in morning trade on Friday as fears over the health of banks’ bond portfolios rattled nervous investors around the world. 

 The region-wide Stoxx 600 fell 1.4 per cent, hit by declines in bank stocks such as Deutsche Bank and Société Générale, which fell 7.7 per cent and 4.6 per cent respectively. 

The Stoxx bank index lost 4 per cent, its worst one-day performance since last June. 

✓ London’s bank-heavy FTSE 100 was down 2 per cent. 

✓ 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. 

 The sharp falls were sparked by a widespread sell-off overnight in US bank stocks, which analysts linked to problems at Silicon Valley Bank, a small US lender. 

✓ The S&P 500’s financial sub-index lost 3.9 per cent on Thursday.

✓ SVB’s losses shifted investor attention to the potential risks in the large portfolios of bonds held by banks, which invested deposits into long-dated securities such as Treasuries at the height of the pandemic. The prices of those assets tumbled in last year’s global bond market rout, meaning banks would realise large losses on their holdings if they are forced to sell. 

 “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.” 

 The declines compounded investors’ nervousness ahead of the publication of the closely watched non-farm payrolls data, due out later on Friday. Stocks and bonds have already been jolted this week by comments from the Federal Reserve that it would be prepared to reaccelerate the pace of interest rate increases if the US economy and inflation do not cool. . ." READ MORE