Stocks yesterday fell as losses in US lenders deepened, with doubts over regional banks’ health prompting traders to cut risk at the end of a volatile week. Bonds and haven currencies were major beneficiaries, as investors rushed for safety.
The S&P 500 looked set for a second day of losses, with index futures down 1 percent, as US banking stocks extended their slide in premarket trading. Bank of America Corp, Citigroup Inc, Morgan Stanley and Wells Fargo & Co slid more than 1.5 percent. Deutsche Bank AG slumped more than 6 percent in Frankfurt.
Meanwhile, Wall Street’s chief fear gauge, the Cboe Volatility Index, or VIX, jumped to its highest level since US President Donald Trump roiled markets in April with his tariff policies.
Photo: Bloomberg
Risk measures for Europe’s credit market rose, with an index tracking credit default swaps on senior bank bonds up as much as 3.2 basis points, the most in almost a month. A similar gauge that tracks CDS contracts for subordinated bank debt climbed the most in a week.
US Treasuries added to Thursday’s gains, with 10-year yields falling 2 basis points to 3.96 percent. Gold fluctuated, while the yen and Swiss franc led advances among major currencies against the US dollar.
The moves underscored growing concerns about the US credit market, offering the clearest sign yet of the nervous undercurrents running through Wall Street. They add to a mounting list of investor worries, from the US government shutdown to fears of an artificial intelligence bubble and renewed US-China trade tensions.
“This very much looks like end-of-cycle symptoms, where we can see hints of complacency in lending standards,” said Raphael Thuin, head of capital markets strategies at Tikehau Capital. “With this year’s rally and costly valuations, the temptation to take profits and secure year-to-date gains is high.”
As the fallout from the collapse of auto-parts supplier First Brands Corp ripples through the lending industry, short interest in the SPDR S&P Regional Banking ETF has risen to 30 percent of shares outstanding, from 18.4 percent on Oct. 8, data compiled by S&P Global Market Intelligence showed.
Among the biggest decliners in European bank bonds yesterday were JPMorgan’s euro-denominated securities due January 2036, which fell about 0.5 percent, the most since early last month, and Barclays PLC’s bonds due 2035, which dropped the most in about three weeks.
Some analysts downplayed yesterday’s moves as an overreaction rather than a sign of systemic risk, calling comparisons to the start of the financial crisis overblown.
“Today’s move on European banks is purely a knee-jerk reaction, as there are currently a lot of reasons to sell them: falling interest rates, political risk and the fact they rallied so much this year,” said Jerome Legras, head of research at Axiom Alternatives Investments. “I was there in 2007 and I can tell you that this is absolutely nothing like it.”
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