US stock futures wiped out earlier gains and banks led declines among European equities as concerns about the stability of the sector gripped traders before the weekend. With a risk-averse mood spreading through markets, bonds and the dollar rallied.
(Bloomberg) — US stock futures wiped out earlier gains and banks led declines among European equities as concerns about the stability of the sector gripped traders before the weekend. With a risk-averse mood spreading through markets, bonds and the dollar rallied.
The Stoxx Europe 600 Index slid for a second day as a gauge of banks erased the last of its gains from the start of the week. Deutsche Bank AG slumped 15%, the most since the early days of the pandemic in March 2020. Contracts on the S&P 500 sank 0.8%, while those on the Nasdaq 100 fell 0.5% after the underlying gauge approached the threshold of a bull market Thursday.
UBS Group AG shares dropped as Bloomberg reported that it’s one of the banks under scrutiny in a US Justice Department probe into whether financial professionals helped Russian oligarchs evade sanctions, according to people familiar with the matter.
Traders remained wary of problems that built up in the banking sector during the Federal Reserve’s rapid hiking cycle. US lenders slumped Thursday even after Treasury Secretary Janet Yellen told lawmakers she was prepared for further steps to protect deposits if needed. A measure of US financial heavyweights sank to the lowest since November 2020.
“Confidence is fragile, market volatility is likely to stay high, and policymakers may have to go further to make sure faith in the global financial system stays solid,” said Mark Haefele, chief investment officer at UBS Wealth Management. “Financial conditions are also likely to tighten, which increases the risk of a hard landing for the economy, even if central banks ease off on interest-rate hikes.”
Treasuries rose amid the haven buying, sending the policy-sensitive two-year yield down more than 20 basis points, while those on German and UK 10-year notes dropped more than 15 points.
The dollar headed higher after weakening in the previous six sessions, while the yen advanced to the highest in six weeks. Crude oil slumped the most in over a week, feeling the effects of a stronger dollar. Gold edged higher. Bitcoin dropped.
Bank of America Corp. strategists said investors are fleeing to cash in the biggest rush since the onset of the pandemic as concerns of an economic slowdown mount, and they see equity and credit markets slumping in the coming months.
“Credit and stock markets too greedy for rate cuts, not fearful enough of recession,” a team led by Michael Hartnett wrote in a note. The strategist, who was correctly bearish through last year, said investment-grade spreads and stocks will be taking a hit over the next three to six months.
Global cash funds had inflows of nearly $143 billion, the largest since March 2020 in the week through Wednesday — adding up to more than $300 billion over the past four weeks, according to the note, which cited EPFR Global data.
In US premarket trading, Block Inc. shares extended a 15% drop from the prior day in the wake of a report from short-seller Hindenburg Research about the company’s Cash App platform. Block said the report was “factually inaccurate and misleading.”
Investors confronting the twin concerns of fragility in the banking sector and the threat of further interest-rate increases by central banks received evidence Friday that more tightening could be in store. Resilient euro-zone economic data suggested European Central Bank policymakers have more work to do to subdue inflation.
The ECB will need to continue raising rates and then should keep them at a high level, according to Bundesbank President Joachim Nagel. “If inflation develops as projected, this should in my view not mark the end of the hike sequence,” Nagel said in a speech in Edinburgh on Friday, going on to insist that borrowing costs shouldn’t then be cut prematurely.
Key events this week:
- Eurozone S&P Global Eurozone Manufacturing PMI, S&P Global Eurozone Services PMI, Friday
- US durable goods, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures fell 0.8% as of 8:37 a.m. New York time
- Nasdaq 100 futures fell 0.5%
- Futures on the Dow Jones Industrial Average fell 0.9%
- The Stoxx Europe 600 fell 1.7%
- The MSCI World index fell 0.6%
Currencies
- The Bloomberg Dollar Spot Index rose 0.5%
- The euro fell 0.8% to $1.0748
- The British pound fell 0.6% to $1.2216
- The Japanese yen rose 0.6% to 130.13 per dollar
Cryptocurrencies
- Bitcoin fell 1.1% to $28,027.57
- Ether fell 2.4% to $1,775.14
Bonds
- The yield on 10-year Treasuries declined 11 basis points to 3.32%
- Germany’s 10-year yield declined 13 basis points to 2.07%
- Britain’s 10-year yield declined 17 basis points to 3.19%
Commodities
- West Texas Intermediate crude fell 3.5% to $67.50 a barrel
- Gold futures rose 0.2% to $2,016.90 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Michael Msika.
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