Bond markets surged and U.S. equity futures erased gains as the collapse of Silicon Valley Bank continued to reverberate through trading desks.
Contracts on the S&P 500 and Nasdaq 100 initially rallied early on Monday as investors dialed back rate-hike bets, but gave up those gains amid worries about the health of the banking and tech sectors. First Republic Bank shares slumped more than 60 per cent in premarket trading as the regional lender became the latest casualty of liquidity concerns.
The Stoxx Europe 600 index tumbled 2.5 per cent, led by banks and insurers. HSBC Holdings Plc fell more than 2 per cent after buying the UK unit of SVB. “The market is likely to remain very cautious despite regulators stepping in,” said Marija Veitmane, senior multi-asset strategist at State Street Global Markets. “The inflation problem is still very present in the US, but the failure of SVB puts the Fed's focus on financial stability. This is a difficult position Fed is in, on the one hand it needs to keep hiking to arrest inflation, but also it needs to protect the financial system.
Monday's moves in markets come after risk assets got pummeled last week, with the U.S. stock benchmark suffering its worst week since September. Wall Street's so-called “fear gauge” spiked, with the Cboe Volatility Index hitting the highest this year.
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