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Global stock markets fell on Friday, led by a sell-off in bank shares as investors worried about the health of regional lenders in the US.
S&P 500 futures were down 0.3 per cent, recovering from a previous 1.5 per cent fall after US President Donald Trump suggested that Washington would overcome trade tensions with China.
The Vix index of short-term volatility in US stocks, often called Wall Street’s “fear gauge”, climbed as high as 28.99 points, its highest level since April, before slipping back to 24.68.
Trump indicated in an interview with Fox News that his planned additional tariffs of 100 per cent on Chinese imports might not be in place for long.
Asked whether the tariff would stand, he said: “No, it’s not sustainable, but that’s what the number is” — comments that were initially seized on by the markets.
Trump subsequently said of the elevated tariff: “It could stand but they forced me to do that; I think we are going to do fine with China.”
Friday’s market moves came after two American lenders, Western Alliance Bank and Zions Bank, disclosed that they were exposed to alleged fraud by borrowers.
The selling spread to Europe, with bank shares leading a 1.1 per cent decline in the Stoxx Europe 600 index, while safe haven government bonds rallied. Deutsche Bank fell 5.7 per cent, Barclays declined 5.6 per cent and BNP Paribas dropped 3.4 per cent.
“The market is viewing it as a case of no smoke without fire, and clearly it’s a big one day, risk-off move,” said Craig Cameron, head of European equities at Franklin Templeton.
The disclosures by Western Alliance and Zions fuelled a 6.3 per cent drop in the KBW US regional banking index on Thursday, and added to jitters over the health of credit markets following the failures of auto lender Tricolor and car-parts maker First Brands.
That has led traders to reduce risk amid broader worries of a bubble in artificial intelligence stocks that has powered US markets to a series of record highs.
“When you’re already worried about the AI bubble and the US-China trade wars coming back, you can’t afford to have this kind of newsflow,” said Arun Sai, a senior multi-asset strategist at Pictet Asset Management. “With First Brands, Tricolor, investors are starting to see a pattern.”
The 10-year US Treasury yield, which moves inversely to prices, fell 0.01 percentage points to 3.99 per cent, its lowest since April.
Asian markets also declined on Friday, with Hong Kong’s Hang Seng index shedding 2.5 per cent and mainland China’s CSI 300 index falling 2.3 per cent. Japan’s benchmark Topix slipped 1 per cent.
Emmanuel Cau, head of European equity strategy at Barclays, said the sell-off was being “largely driven by credit quality concerns, but [is] more an excuse for profit-taking for now”, with bigger falls for stocks that have performed well this year.
