"There is a risk that we enter a self-fulfilling cycle of negative sentiment leading to lower stock prices, higher funding costs and deposit flight," said James Rutherford, head of European equities at Federated Hermes.
The turmoil in the banking sector comes as the Federal Reserve raised interest rates by 25 basis points on Wednesday but hinted that its marathon hiking cycle may be ending.
Markets are pricing for the Fed to stand pat at its next meeting in June before embarking on rate cuts from July, according to CME FedWatch tool.
"There is plenty of data between now and the June 14 Fed meeting, with what happens in the banking sector being more key at the moment," Saxo Markets strategists said. U.S. nonfarm payroll data for April will be released later in the global day.
European stock markets looked set for a higher open, with Eurostoxx 50 futures up 0.42%, German DAX futures up 0.39% and FTSE futures up 0.33%. On Thursday, the European Central Bank raised interest rates by 25 basis points to 3.25% and signalled that more tightening would be needed to tame inflation. Markets though pared back their expectations on how much further rates would rise. Nick Rees, FX market analyst at Monex Europe, said it was clear that the ECB is now in the home stretch when it comes to monetary tightening, despite ECB President Christine Lagarde's attempt to steer markets away from this narrative. China shares fell 0.71%, while Hong Kong's Hang Seng index was up 0.6%. China's service activity grew for a fourth straight month in April, a private-sector survey showed on Friday, as businesses continued to benefit from the country's reopening, although expansion slowed slightly. E-mini futures for the S&P 500 rose 0.35% after Apple Inc's results beat expectations, helped by better-than-expected iPhone sales and notable inroads in India and other newer markets. In the currency market, the Japanese yen strengthened 0.20% to 134.04 per dollar, on course for its first weekly gain in nearly a month. Sterling was last trading at $1.26095, up 0.27% on the day, having touched an 11-month high of $1.26150. The euro firmed 0.27% to $1.10435. Against a basket of currencies, the dollar eased 0.170% to 101.17.
Meanwhile, spot gold eased 0.1% to $2,049.68 an ounce, hovering close to its all-time high of $2,072.49. U.S. crude rose 0.77% to $69.09 per barrel and Brent was at $73.07, up 0.79% on the day. Still, oil prices were set for a third straight week of losses after markets witnessed dramatic drops on fears of a weakening U.S. economy and slowing Chinese demand. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ World FX rates YTD Asian stock markets ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Editing by Jacqueline Wong & Simon Cameron-Moore)
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