Biden reassures Wall Street but Europe slumps on bank worries
European stocks plunged and Wall Street equities were mixed Monday after US President Joe Biden sought to give assurances that America's banking system is sound, following the collapse of two lenders.
The sessions came after US authorities stepped in to protect depositors at Silicon Valley Bank, which collapsed, while regulators took over a second troubled lender.
US bond yields fell as investors judged the turmoil in the regional banking sector could push the Federal Reserve to become gun-shy on raising interest rates, a move which would be positive for stocks but pushed down the dollar.
The Dow ended 0.3 percent lower, the broad-based S&P 500 shed 0.2 percent, while the tech-rich Nasdaq advanced 0.5 percent.
Biden said "Americans can have confidence that the banking system is safe" as he vowed to push for tougher regulations on banks.
Fears that SVB's collapse could spark contagion forced the Fed, the Treasury Department and Federal Deposit Insurance Corp. to promise to fully protect depositors and give backup to lenders struggling to find cash, providing easier terms on short-term loans.
On Sunday, New York regulators said they had closed another lender, Signature Bank.
But big declines in other midsized banks disconcerted investors. First Republic plunged around 62 percent, KeyCorp dropped 27.3 percent, and Zions Bancorp dropped 25.7 percent.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said news about contagion risk "will likely interfere with Federal Reserve rate hike expectations... as the Fed may want to think twice before stepping on the gas this month."
Analysts note that the central bank faces a tough balancing act -- if inflation remains elevated, the Fed will still feel pressure to hike rates this month.
"The prospect of further interest rate hikes has certainly receded today, but the real focus for now is on worrying about how far the crisis will spread," said Chris Beauchamp, chief market analyst at online trading platform IG.
The Fed's sharp interest rate hikes, which sought to tame inflation, helped provoke SVB's collapse as the prices for securities on its books fell below their purchase price -- and this could be a problem for other banks.
- 'Weakest link' -
"The Fed is now in question over even a 25-point hike at the next meeting," Strategic Alpha analyst Maurice Pomery told AFP.
"The issue for me is that many businesses were constructed on zero interest rates, leverage and debt model -- which with rising rates is no longer viable," he warned.
Fears about contagion dominated trading in Europe.
Germany's finance watchdog insisted the collapse of SVB posed no threat to financial stability, as did the French central bank.
France's Finance Minister Bruno Le Maire told investors to "calm down" after shares in French banks tumbled.
Shares in French banks BNP Paribas fell 6.8 percent and Societe Generale 6.2 percent. Italy's Unicredit tumbled 9.0 percent and Spain's Santander 7.4 percent. Deutsche Bank shares fell 4.9 percent.
The Paris and Frankfurt stock markets closed around three percent lower while Milan fell four percent. London was down 2.6 percent.
"Far from calming nerves, fear of contagion has ramped up further with investors dumping risk assets across Europe," City Index analyst Fiona Cincotta told AFP.
"Banks are leading the charge southwards with investors taking aim at Spanish and Italian banks, suggesting that these are considered the weakest links as fears rise," Cincotta said.
- Key figures around 2115 GMT -
New York - Dow: DOWN 0.3 percent at 31,819.14 (close)
New York - S&P 500: DOWN 0.2 percent at 3,855.76 (close)
New York - Nasdaq: UP 0.5 percent at 11,188.84 (close)
London - FTSE 100: DOWN 2.6 percent at 7,548.63 (close)
Frankfurt - DAX: DOWN 3.0 percent at 14,959.47 (close)
Paris - CAC 40: DOWN 2.9 percent at 7,011.50 (close)
Milan - FTSE MIB: DOWN 4.0 percent at 26,183.54 (close)
EURO STOXX 50: DOWN 3.1 percent at 4,096.54 (close)
Tokyo - Nikkei 225: DOWN 1.1 percent at 27,832.96 (close)
Hong Kong - Hang Seng Index: UP 2.0 percent at 19,695.97 (close)
Shanghai - Composite: UP 1.2 percent at 3,268.70 (close)
Dollar/yen: DOWN at 133.22 yen from 135.09 yen on Friday
Euro/dollar: UP at $1.0731 from $1.0643
Pound/dollar: UP at $1.2181 from $1.2035
Euro/pound: DOWN at 88.02 pence from 88.40 pence
West Texas Intermediate: DOWN 2.5 percent at $74.80 per barrel
Brent North Sea crude: DOWN 2.4 percent at $80.77 per barrel