NEW YORK, UNITED STATES — Global markets took a beating on Friday as US jobs data boosted the likelihood of further aggressive interest rate hikes, while bank shares wobbled amid the collapse of SVB.
After sharp losses on Thursday, Wall Street’s top indices had managed to peek into the green before regulators closed the troubled Silicon Valley Bank, sending stocks tumbling into the red again.
European equity markets ended sharply lower, with London stocks sliding 1.7 per cent while both Paris and Frankfurt dropped 1.3 per cent.
Asian stocks also posted steep losses.
Markets were rocked after SVB, which specialises in venture-capital financing, on Thursday announced a stock offering and offloaded securities to raise much-needed cash as it struggled with falling deposits.
In reaction, the firm’s shares collapsed 60 per cent in New York on Thursday and trading was suspended Friday morning, before regulators announced they had closed the bank.
The move makes SVB the largest retail bank to fail since 2008.
“It’s the second day of concerns around the banking sector and questions whether this reflects any systemic risk,” said Angelos Kourkafas of financial services firm Edward Jones.
“Probably, the answer to that is no. But still, confidence is a bit shaken,” he said.
SVB’s problems were sparked by customer withdrawals that led the company to liquidate securities positions whose values had plummeted due to the Federal Reserve’s interest rate hikes.
The quick jump in interest rates meant that securities they had bought were selling for significantly less.
That is a situation that probably holds true for other banks and could pose a problem if they need to raise funds.
“What today and this week shows is that we are beginning to feel the effect of Fed tightening on the markets and the economy,” Kourkafas said.
In the United States, hard-hit banks included First Republic Bank which slumped 14.8 percent, and Comerica, which slipped five percent.
Larger banks like JPMorgan Chase and Bank of America had a mixed performance on Friday.
In London, shares in banking giant HSBC slumped 4.7 per cent, while Standard Chartered fell 4.4 per cent, Barclays 4.1 per cent and Lloyds 3.5 per cent.
In the eurozone, Deutsche Bank tanked 10 per cent at one stage and closed down 7.4 per cent, while French lender Societe Generale slumped 4.5 per cent.
Fed rate hike expected
Meanwhile, US jobs data came in stronger than expected with 311,000 jobs created last month, suggesting more effort may be needed to cool the world’s biggest economy. Analysts expect further interest rate hikes are likely.
Earlier this week, Federal Reserve Chair Jerome Powell warned that the US central bank was prepared to speed up the pace of interest rate hikes and could lift rates higher than earlier anticipated if needed to rein in stubborn inflation.
The Fed has been closely eyeing the jobs market, with labour demand exceeding the supply of available workers.
But Fawad Razaqzada, market analyst at City Index and FOREX.com, said the situation has become more complicated for Powell given the tremors SVB caused in the banking sector.
“The dilemma is that if he opts for more hikes, there is a risk that some regional banks might collapse, while not doing anything could exacerbate inflationary pressures again,” he said.
The dollar fell sharply against its main rivals despite the likelihood of higher US interest rates.