Share prices are tumbling today following a sharp sell-off on Wall Street amid a sudden crisis of confidence in the US banking sector.
European banking names are down between 4 and 8 per cent in early trading. Credit Suisse has fallen to a new all-time low and financials on the FTSE 100 are down around 4 per cent, with HSBC losing 5.3 per cent and Barclays 5.4 per cent.
Overall this has led to one of the worst red days for a while. The FTSE 100 is down 1.7 per cent, the DAX 1.4 per cent and the CAC 40 1.3 per cent. It follows a drubbing in the US last night, with the S&P down 1.9 per cent and the Dow 1.7 per cent. The S&P hit 3,918, and broke through its 200-day moving average and March low. It’s expected to open another 0.7 per cent down, futures trading shows. This also incorporates jitters about payrolls data due out later today (more on this below).
The sell off was sparked overnight by SVB Financial, which sank by more than 60 per cent. Silicon Valley Bank, a prominent lender to tech startups, announced a $2.25bn capital raise in response to a $1.8bn loss on the sale of a portfolio marked at $21bn. The bank, whose deposit base has been declining in part because its customers are particularly concentrated in the venture-backed US start-up sector, sold the bonds in a bid to raise cash. The portfolio included US Treasuries and mortgage-backed securities. Concerns over the marks on other bond portfolios in the sector prompted selling elsewhere. Bank of America and Wells Fargo declined 6 per cent and the KBW Nasdaq Bank Index slipped 7.7 per cent, its worst performance in three years.
It might be overdone. SVB does not represent the wider US banking sector, albeit the plummet in its shares clearly hit sentiment. It seems as though SVB was just gripping the wrong end of the stick with regards to rising interest rates, parking way too much of its assets in long-dated bonds which it thought safe but are now worth a lot less. Funnily enough, bond yields fell sharply as investors went into fixed income amid some potential signs that the Fed’s rate hikes might be working.
Weekly jobless claims in the US jumped by the most in five months. While SVB probably doesn’t portend a wider banking crisis, it could be the straw that breaks the camel’s back as far as the market is concerned. We’ve been waiting for the final flush and peak rate expectations plus nascent signs of cracks in the US economy is the right cocktail of risks for markets to fall.
Big day for data
Non-farm payrolls data are due later today, likely to provide a very important and telling steer regarding the Fed’s policy decision on March 22nd. Payrolls are forecast to have risen by around 205k last month, down from the monster 517k in January. Wage growth is expected to be 0.3 per cent and unemployment steady at 3.4 per cent. The question is what do the numbers need to be for the market to assume the Fed goes for a 0.25 point rise rather than 0.5 point? We are just about reaching the point where the hard landing becomes inescapable. This isn’t a case of ‘bad news is good news’ for stocks because we’ll get a hard landing and the Fed is still tightening to combat inflation. Luckily, the Fed comms blackout ahead of the decision is about to begin, so we’ll have less noise to contend with.
Back home, Britain’s economy grew more than expected in January – reports about its demise may have been premature. But growth of 0.3 per cent between December and January is still not exactly firing on cylinders. Output is still down 0.2 per cent on February 2020 and flat with last year. There is lots for the chancellor to do with his Budget next Wednesday.
