US Bank Troubles Hammer Stocks, Boost Treasuries: Markets Wrap

(Bloomberg) — Stocks tumbled and Treasuries rallied as worries about the health of the US banking system caused a sharp selloff in global markets.

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Europe’s Stoxx 600 equity gauge dropped more than 1.5%, with an index of bank stocks sliding the most since June. Credit Suisse Group AG shares tumbled as much as 6.1% to a record low, and HSBC Holdings Plc was down more than 5%.

Futures on the US S&P 500 lost about half a percent after the underlying benchmark hit a seven-week low on Thursday as banking stocks plunged. As investors dashed for safety, Treasury yields fell, with the two-year segment slipping to 4.75% and heading for its biggest two-day slide since last June.

The rout came after Silvergate Capital Corp. collapsed as the crypto industry’s meltdown sapped its financial strength, SVB Financial Group plummeted by a record following a stock sale to shore up losses. Their woes highlight the impact of relentless Federal Reserve policy tightening on the financial sector as soaring rates erode balance sheets. Still to come Friday is key monthly US jobs data, which may re-chart the course for US rates and the dollar.

“When market nerves were already on edge amid rising Fed rate expectations, news of California-based Silicon Valley Bank facing a liquidity crisis tipped investors over the edge,” RBC Capital analyst Alvin Tan told clients in a note.

Money markets have already scaled back bets the Fed would opt for a half-point hike at its March 21-22 meeting to about an even chance, having earlier priced a 75% likelihood. Data on Thursday showed the number of Americans filing for unemployment benefits unexpectedly swelled to the highest this year.

That set the stage for Friday’s monthly jobs report. Economists project a 225,000 increase in February payrolls, about half January’s blockbuster pace, and a softer number could further tilt expectations back to a quarter-point hike.

However, the Fed will have to position to “potentially raise by a half a percentage point very quickly” if the payrolls data come 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 stayed flat against a basket of currencies, while the yen retreated after the Bank of Japan kept monetary settings unchanged at Governor Haruhiko Kuroda’s final policy meeting. The pound firmed after data showing the UK economy had bounced back in January.

The switch-off in risk sentiment and the wind-down of crypto-friendly Silvergate put bitcoin on track for its worst week since November. A Bloomberg commodity index has lost more than 4% this week, while oil is headed for its biggest weekly loss since early February.

Key events this week:

US nonfarm payrolls, unemployment rate, monthly budget statement, Friday

Some of the main moves in markets:

Stocks

The Stoxx Europe 600 fell 1.6% as of 8:41 a.m. London time
S&P 500 futures fell 0.6%
Nasdaq 100 futures fell 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%

Currencies

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

Cryptocurrencies

Bitcoin fell 1.6% to $19,896.6
Ether fell 1.9% to $1,405.52

Bonds

The yield on 10-year Treasuries declined eight basis points to 3.82%
Germany’s 10-year yield declined 13 basis points to 2.51%
Britain’s 10-year yield declined 12 basis points to 3.67%

Commodities

Brent crude fell 1% to $80.78 a barrel
Spot gold rose 0.2% to $1,835.35 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Rob Verdonck and Akshay Chinchalkar.