Global stock markets fell sharply and gold hit a record high after two US regional banks said they had been left exposed to millions of dollars of bad loans and alleged fraud.
Signs of credit stress rattled markets across Europe and Asia. In London the FTSE 100 fell 1.5%, Germany’s Dax fell 2%, the Ibex in Spain was off 0.8% and France’s Cac 40 dropped 1.5%, before recovering some ground.
Concerns over credit stress in the network of loans to businesses across the world’s largest economy fuelled heavy losses on Wall Street on Thursday, followed by Asian markets, with Japan’s Nikkei 225 falling 1.6% and the Hang Seng in Hong Kong dropping 2%. US markets are expected to open down later on Friday.
Jittery investors turned to safe haven assets, with gold hitting a new record of $4,378 (£3,262) an ounce, a weekly gain of almost 8.5%, its biggest since the 2008 financial crisis.
More here:
Updated at 05.19 EDT
Key events
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Weaknesses in the US regional banking sector are just the latest in a list of issues for investors to worry about.
As Bob Savage, head of markets macro strategy at BNY, explains:
Today’s market reaction isn’t just a US story: in China, bonds have rallied while CNY and stocks are both down going into the weekend, as the market waits for the next plenum and further economic policy shifts. Japan faces a 50-50 moment in which the LDP may not win the prime ministership, while megabanks in the country are allowed to issue stablecoins for business use.
The global demand fears are also driving energy: oil is off 1%, with the key $60/barrel Brent mark in sight. In Europe, the focus is on defense shares and plans for a Putin/Trump meeting after today’s Zelenskyy/Trump meetings. EU drug maker shares are also in focus following Trump’s vows to cut weight-loss drug prices.
The US stock market futures are paring their earlier declines – a sign that Wall Street will not fall as sharply as feared.
S&P 500 fuures are now down 0.3%, Nasdaq 100 futures are down 0.6%, while the Dow Jones Industrial average is only facing a 0.1% drop.
ShareAsset managers among FTSE 100 fallers
City traders are catching their breath after one of the most testing morning sessions of recent months.
The FTSE 100 share index is now down 120 points, or 1.27%, so it’s clawed back a little of its earlier losses.
Barclays remains the biggest faller in London, down 5.7%, as worries about problems in the US regional banking setor continue to ripple out….
But it’s now accompanied by several asset managers: ICG are down 5.4%, while Schroders has lost 4.6% and St James’s Place is down 3.7%.
Kathleen Brooks, research director at XTB, says fears of a credit bubble are dominating the markets today:
It’s a volatile end to the week, stocks are a sea of red in Europe and Asia, and US equity market futures are pointing to another day of hefty losses for stock indices across the pond.
The selloff has been caused by fears about the private credit market. What started as concerns about two bankrupt companies, First Brands and Tricolor, and the impact on private lenders, has now broadened out to concerns about US regional banks after Zions Bancorp and Western Alliance both said that they would suffer losses due to fraudulent loans.
The dash into government bonds today means Germany’s borrowing cost are heading for their biggest weekly drop since late March.
Reuters has the details:
Germany’s 10-year Bund yields, the bloc’s benchmark, were down 2 basis points (bps) at 2.58%, after hitting 2.523%, the lowest since June 25.
They were set to end the week 9 basis points lower, which would be the biggest drop since the final week of March, when yields fell sharply amid concerns over the deflationary impact of U.S. tariffs.
Richard Partington
Huw Pill added that the Bank of England would take into account the policies announced in Rachel Reeves’s November budget at its December monetary policy meeting.
Asked by the Guardian whether the upcoming UK budget risks impact inflation persistence or economic weakness, the BoE’s chief economist said the Bank’s decisions were based on announced policy measures.
Pill says:
“The budget is an important issue but it’s not the only issue.”
ShareBank of England chief economist urges caution over interest rates cuts
Richard Partington
The Bank of England chief economist has warned interest rates should be kept higher for longer amid growing fears over stubbornly high inflation.
Huw Pill said inflation was proving stickier than Threadneedle Street had anticipated, in a “wicked problem” facing the UK economy as households and businesses come under pressure from fast-rising prices.
Speaking at a conference in London held by the Institute of Chartered Accountants in England and Wales, he said:
“The need to recognise the stubbornness of inflationary pressures is becoming more pressing.”
Headline inflation is running at 3.8%, almost twice the Bank’s 2% target. Threadneedle Street expects the measure to reach a peak of 4% this autumn, driven by a sharp rise in food prices. Official inflation figures for September are due to be released next week.
In a possible hint that he would vote to keep rates on hold at the Bank’s next policy meeting in November, Pill said: “from this point forward, a more cautious pace in withdrawing monetary policy restriction.”
The Bank’s monetary policy committee will hold its next vote on rates on 6 November, three weeks before chancellor Rachel Reeves’s autumn budget.
Suggesting that the Bank would need to be alive to shocks, Pill suggested he was prepared to keep rates on hold for longer, or to cut borrowing costs if required. Bank rate has been cut five times since August 2024 to the current level of 4%.
He added:
“While I would expect further cuts in Bank Rate over the coming year should the economic and inflation outlook evolve broadly as the MPC expects, it will continue to be important to guard against the risk of cutting rates either too far or too fast.”
ShareBitcoin lowest since June as selloff deepens
Bitcoin is also caught up in today’s sell-off.
The world’s largest crypto asset has dropped by 3.8% so far today to $103,738, its lowest level since late June.
This is its fourth daily decline in a day, as bitcoin has fallen back from the record high of $126,223 reached early this month.
Simon Peters, crypto analyst at eToro says
“Markets across the board are in risk-off mode amidst growing concerns in the US regional banking sector and stress in broader credit markets.
“In crypto markets specifically, with the bitcoin price slipping below the recent $108,000 support level, this seems to have caused a degree of liquidations in the bitcoin perpetual futures market, to the tune of $147 million at time of writing – according to Coinglass data – which is adding to the downward pressures and exacerbating the decline.
“More speculative altcoins are seeing greater declines, down over 10% in some cases. We are looking now to the $100,000 level on bitcoin as a potential support. If the concerns in the US regional banking sector are isolated and not a systemic risk, we could see a bounce as investors buy the dip.
“An end of the government shutdown and a release of some favourable economic data from the US could also provide a short-term tailwind to prices. We wait to see.”
ShareFear index highest since April
Wall Street’s fear index has jumped this week, as worries grip the markets.
The VIX index, which tracks volatility in the markets, surged by over 22% yesterday to its highest closing level since April.
It’s up another 6% again this morning, to 26.89 points.
Updated at 05.54 EDT
Our news story about the sell-off in the markets this morning:
Global stock markets fell sharply and gold hit a record high after two US regional banks said they had been left exposed to millions of dollars of bad loans and alleged fraud.
Signs of credit stress rattled markets across Europe and Asia. In London the FTSE 100 fell 1.5%, Germany’s Dax fell 2%, the Ibex in Spain was off 0.8% and France’s Cac 40 dropped 1.5%, before recovering some ground.
Concerns over credit stress in the network of loans to businesses across the world’s largest economy fuelled heavy losses on Wall Street on Thursday, followed by Asian markets, with Japan’s Nikkei 225 falling 1.6% and the Hang Seng in Hong Kong dropping 2%. US markets are expected to open down later on Friday.
Jittery investors turned to safe haven assets, with gold hitting a new record of $4,378 (£3,262) an ounce, a weekly gain of almost 8.5%, its biggest since the 2008 financial crisis.
More here:
Updated at 05.19 EDT
AJ Bell: spooked investors fear a crisis is brewing.
Today’s selloff follows growing concern that a bubble was building in the markets.
But while a lot of the chat has been about the surging valuation of artificial intelligence companies, it’s the banking sector that triggered the drop in shares today.
Russ Mould, investment director at AJ Bell, explains:
“US banking stocks were notably weak yesterday as investors worried about exposure to bad loans. That spread to Europe on Friday, with Barclays, Standard Chartered, NatWest and HSBC all dragging the FTSE 100 down.
“Pockets of the US banking sector including regional banks have given the market cause for concern. Investors have started to question why there have been a plethora of issues in a short space of time and whether this points to poor risk management and loose lending standards. This includes Zions flagging an unexpected loss on two loans and Western Alliance alleging a borrower had committed fraud.
“The pullback in UK-listed banks will be sentiment-driven. Investors have been spooked and moved to trim positions in the sector, possibly opting to have lower exposure in case a crisis is brewing. There is no evidence of any issues with the London-listed core banking names, but investors often have a knee-jerk reaction when problems appear anywhere in the sector.
“However, investors are watching one London-listed name in the broader financials sector very closely. ICG, formerly called Intermediate Capital Group, was the biggest faller on the FTSE 100 as it has exposure to private credit and asset-backed finance.
ShareBond yields fall amid concerns about credit and regional banks
Government borrowing costs are falling today, as investors seek out the relative safety of bonds.
Prices of US Treasuries, and UK gilts, are both rising today, which pushes down the yield (the effective interest rate) on these bonds.
Falling UK yields are a boost to Rachel Reeves; lower borrowing costs will help the chancellor keep within her fiscal rules.
Gilt yields have been falling this week, as Reeves reiterated her commitment to controlling borrowing and hinted at tax rises for the wealthy.
But it does also appear that this week’s moves are driven by worries about problems lurking in the US private credit, and regional banking, sectors.
As Allianz’s chief economic advisor Mohamed El-Erian explains:
Of note, the yield on the 10-year US Treasury has fallen below 4% as credit concerns weigh on regional bank stocks (Bloomberg charts below). This follows warnings from Jamie Dimon, JP Morgan CEO, about credit “cockroaches”.
ShareWall Street futures are down
Wall Street is heading for fresh losses when trading opens in New York.
The futures market shows that the S&P 500 share index is on track to drop by 1.2%, while the tech-focused Nasdaq 100 futures are down 1.4%.
Dow Jones Industrial Average futures are down 1% (the Dow contains 30 large US companies).
There could be larger losses among small companies. The futures contract for the Russell 2000 index (which tracks smaller listed companies) is down 2%.
ShareEuropean banking stocks tumble as US fears hit markets
It’s turning into a bad morning for European banks; an index which tracks the sector has fallen by 2.8% so far this session.
The fallers are being led by Banco de Sabadell (-6.2%), Deutsche Bank (-5.95%), and Barclays (-5.7%).
Chris Beauchamp, chief market analyst at IG, says
“It was an ugly session on Wall Street yesterday, as small gains gave way to an accelerating move to the downside on fears about the US regional bank system.
This feels like a rerun of 2023, but it comes as the market is struggling to digest the latest US-China trade spat and spells trouble in the short-term at least. Sentiment remains skittish, and the instinct will be to sell first and ask questions later.”
Elsewhere in the markets, Novo Nordisk’s shares have dropped 5.5% after Donald Trump said that the price of Danish drugmaker’s best-selling weight-loss drug would be lowered.
Trump made the comments during a White House event on fertility treatments and drug pricing. He was asked by reporters to identify the name of a drug that he earlier in the event said would be made less expensive.
Updated at 03.48 EDT
UK stock market on track for worst day since April
As things stand, the FTSE 100 (now -147 points, or -1.57%) is on track for its biggest one-day loss since early April.
That was the week when Donald Trump triggered a market slump by announcing new tariffs on America’s trading partners.