Shockwaves from the collapse of Silicon Valley Bank further pounded global bank stocks as assurances from President Joe Biden and other policymakers did little to calm markets and prompted a rethink on the interest rate outlook.
Biden’s efforts to reassure markets and depositors came after emergency U.S. measures to shore up banks by giving them access to additional funding failed to dispel investor worries about potential contagion to other lenders worldwide.
Banking stocks in Asia extended declines on Tuesday, with Japanese firms hit particularly hard and anxiety about systemic risk leading the wider market lower.
“Bank runs have started (and) interbank markets have become stressed,” said Damien Boey, chief equity strategist at Sydney-based investment bank Barrenjoey. “Arguably, liquidity measures should have stopped these dynamics but Main Street has been watching news and queues – not financial plumbing.”
A furious race to reprice interest rate expectations also sent waves through markets as investors bet the Federal Reserve will be reluctant to hike next week.
Traders currently see a 50% chance of no rate hike at that meeting, with rate cuts priced in for the second half of the year. Early last week, a 25 basis-point hike was fully priced in, with a 70% chance seen of 50 basis points.
Analysts say uncertainty continues to dog the sector with investors still extremely worried about the health of smaller global banks, the prospect of tighter regulation and a preference to protect depositors at the expense of shareholders should other banks fail.