By Rita Nazareth
Stock losses deepened and bonds rallied as a widening bank rout got traders concerned about the risk of further turmoil in the financial industry.
The S&P 500 headed toward its lowest level since January after gaining earlier in the day on a mixed jobs report. Investors dashed to safety while exiting the shares of banks and other rate-sensitive sectors. Two-year US rates tumbled 23 basis points to 4.64%.
Swap traders downgraded to less than 50% the odds of a half-point March rate hike that Fed Chair Jerome Powell put on the table this week. They also fully priced in a 25 basis-point rate cut by year-end.
Read: US Payrolls Top Estimates While Jobless Rate Rises, Wages Cool
The rate hikes of the past year were not a prelude to a steady Goldilocks economy that’s running neither too hot nor too cold, but instead to a “hard landing and credit events,” strategists led by Michael Hartnett wrote in a note on fund flows pointing to another risk-off week in markets.
Investors pulled $500 million from equity funds and piled $18.1 billion into cash and $8.2 billion into bonds, according to BofA citing EPFR Global data for the period through March 8. The flows emphasize worsening market sentiment this week as worries about banks’ liquidity compound those on the Fed tightening policy more than previously expected.
Troubles at Silvergate Capital Corp. and SVB Financial Group highlight the impact of relentless Fed policy tightening on financial sector balance sheets.
“Our initial take would be that this is unlikely to ensnare the important banks,” said Mark Haefele at UBS Wealth management. “The main focus is on what the Fed does. The jobs data and CPI data are going to influence that.”
US banks can contain contagion risk and system stress stemming from the turmoil unleashed by Silicon Valley Bank, Mohamed El-Erian said.
“Contagion risk and the systemic threat can be easily contained by careful balance sheet management and avoiding more policy mistakes,” El-Erian, the chairman of Gramercy Funds and a Bloomberg Opinion columnist, said in a tweet on Friday.
Some of the main moves in markets:
- The S&P 500 fell 0.9% as of 9:49 a.m. New York time
- The Nasdaq 100 fell 1%
- The Dow Jones Industrial Average fell 0.5%
- The Stoxx Europe 600 fell 1.9%
- The MSCI World index fell 1.1%
- The Bloomberg Dollar Spot Index fell 0.6%
- The euro rose 0.7% to $1.0659
- The British pound rose 1.2% to $1.2063
- The Japanese yen rose 0.9% to 134.91 per dollar
- Bitcoin fell 2.4% to $19,737.76
- Ether fell 3% to $1,389.72
- The yield on 10-year Treasuries declined 17 basis points to 3.74%
- Germany’s 10-year yield declined 20 basis points to 2.44%
- Britain’s 10-year yield declined 21 basis points to 3.58%
- West Texas Intermediate crude was little changed
- Gold futures rose 1.4% to $1,861.10 an ounce
This story was produced with the assistance of Bloomberg Automation.
More stories like this are available on bloomberg.com