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Deutsche Bank tumbles; mood in equity markets sour
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Bond yields drop, yen gains as haven buying continues
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Markets price in aggressive rate cuts from Fed
(Updates prices)
By Koh Gui Qing
NEW YORK, March 24 (Reuters) - Global stock markets
swooned on Friday as fears about contagion among banks hobbled
shares of lenders such as Deutsche Bank , with the
flight from risk shoring up the dollar and driving bond yields
lower.
Market sentiment was hurt by a sell-off in Deutsche shares,
which tumbled as much as 15%, as its credit default swaps , which reflect the cost of insuring debt against
the risk of non-payment, shot to their highest in more than four
years.
"The growing sense of unease about the global banking system
is heightening volatility in stock markets around the world,"
said Nigel Green, chief executive of deVere Group, a financial
advisor.
The failure of U.S. regional banks Silicon Valley Bank and Signature Bank this month triggered fears
of a banking contagion and prompted U.S. Treasury Secretary
Janet Yellen on Thursday to pledge action to safeguard bank
deposits.
"As concerns about the stability of banks persist, we expect
further and intensifying market volatility," Green said.
The Dow Jones Industrial Average reversed earlier
losses to end up 0.41%, the S&P 500 added 0.56%, and the
Nasdaq Composite Index rose 0.31%.
JP Morgan Chase dropped 1.52%, the S&P 500 banks
index was down 0.33%, while the KBW regional bank index climbed 2.92%.
In Europe, the STOXX 600 index fell 1.37%, helping
to drag the MSCI World share index down 0.21%.
A STOXX sub-index of bank shares , which has swung
wildly this week as traders debated if a forced weekend tie-up
between Credit Suisse and UBS was a mark of
stability or incoming systemic stress, dropped 4.64%, heading
for its third consecutive week of declines.
Deutsche, which had announced plans on Friday to redeem $1.5 billion of tier 2 debt not due to be repaid until 2028, slumped 8.5%. For the month so far, Deutsche has shed 27.6%. The moves highlight just how frail sentiment remains after turmoil in the U.S. and European banking sectors in the past two weeks have revived memories of the 2008 global financial crisis. Yellen has this week tried to assuage fears about the health of U.S. lenders and the economic ramifications of a potential lending crunch if depositors flee smaller banks, which have outsized roles in supporting key sectors such as commercial real estate.
"I don't expect this volatility (in bank stocks) to subside
anytime soon," said Peter Doherty, head of investment research
at private bank Arbuthnot Latham in London.
Doherty said issues of "contagion risk within the U.S.
banking sector" were undoubtedly weighing on appetite for bank
stocks elsewhere.
Stronger demand for safe-haven assets, and bets that the
Federal Reserve will soon pause its policy tightening cycle due
to the banking turmoil, pushed the two-year U.S. Treasury yield , which tracks interest rate expectations, down about
3.5 basis points to 3.7709%. Traders have also priced in U.S. rate cuts of about 90 bps
basis points to about 3.9% by the end of the year .
Euro zone government bond yields followed Treasury yields
lower, with two-year German yields dropping a hefty
25 bps to 2.25%.
In currencies, the dollar reversed a losing streak to gain
0.49% against major peers as risk aversion strengthened
appetite for the reserve currency.
The Japanese yen, a safe haven currency, was steady at 130.705 after hitting a six-week high of 129.8 per dollar . The euro fell about 0.6% to $1.07620. Brent crude , the global oil benchmark, fell 1.2% to $74.99 per barrel, as banking sector concerns dimmed the outlook for energy demand. A firmer dollar dragged on gold prices, though they were still on track to end higher for the week, for the fourth consecutive week, as bank contagion worries and bets about a pause in Fed rate hikes bolstered the appeal of non-yielding bullion. Spot gold lost 0.82%, at $1,977.2 per ounce. The Fed raised its main interest rate by a quarter point to a range of 4.5%-4.75% on Wednesday, but signalled it would consider a pause in light of banking system stresses.
Markets, however, are betting on a U.S. recession and incoming rate cuts.
"You could have a period where you see a precipitous drop in the (availability of) credit in the U.S.," said Arun Sai, senior multi-asset strategist at Pictet Asset Management. "This takes us closer to a hard landing, to a U.S. recession." <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Asia stock markets Asia-Pacific valuations ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting by Naomi Rovnick; Additional reporting by Stella Qiu and Chiara Elisei; Editing by Susan Fenton, Jonathan Oatis, William Maclean and Richard Chang)
