European and Asian stocks rattled after US bank stocks sold off

European and Asian stocks tumbled at the open on Friday, as fears over the health of banks’ bond portfolios fueled investors’ jitters ahead of key US economic data releases.

The regional Stoxx 600 fell 1.6 percent, Germany’s Dax 1.8 percent and France’s Cac 40 1.9 percent. London’s FTSE 100 fell 1.6 percent. European banks were hardest hit, with the Stoxx bank index falling 4.8 percent.

In Asia, Hong Kong’s Hang Seng Index fell 2.8 percent, China’s CSI 300 1.3 percent, South Korea’s Kospi 1 percent and Japan’s Topix 1.9 percent.

The moves followed a sharp sell-off on Wall Street on Thursday as investors were spooked by trouble at Silicon Valley Bank, a tech-focused lender.

Shares of SVB fell 60 percent Thursday after it launched a $2.25 billion share sale to shore up its balance sheet. The losses have raised concerns about potential risks in the large bond portfolios of US banks, which were placing deposits in long-dated securities such as Treasuries at the height of the pandemic. The sharp rise in interest rates over the past year has impacted the industry’s profitability.

“[Silicon Valley Bank] is not the problem in and of itself, because it can be solved with deposit insurance or a bailout, so it’s not insurmountable,” said John Roe, head of multi-asset funds at Legal & General Investment Management. “But it’s a reminder that changing conditions very quickly can cause problems and when in doubt, perhaps the Federal Reserve should slow down a little.” [with rate rises].”

Stocks of large European banks were hardest hit, with Deutsche Bank down 8.3 percent, ING down 5.2 percent, Société Générale down 5.4 percent and Virgin Money down 4.5 percent.

Investors’ nerves were also tested by comments from the Fed that it would be willing to resume the pace of rate hikes if the US economy and inflation do not cool. Traders looked to key monthly nonfarm payrolls and unemployment data on Friday to see if the economy was showing signs of slowing.

Last month, the economy added a surprise 517,000 jobs and unemployment was 3.4 percent, the lowest since May 1969.

Lou Brien, economic strategist at DRW Trading Group in Chicago, noted that the Fed has long pursued policy easing measures when unemployment rose. “They have this situation where we’re either going to see the Fed becoming more aggressive if the data is stronger than expected, or this time the unemployment rate is up and the Fed doesn’t act [soon]then it’s all the more worrying – heads you lose, tails you pay for the market.”

Dickie Wong, executive director of research at Kingston Securities in Hong Kong, said worse-than-expected earnings were also on the rise from JD.com, the Chinese e-commerce company, which said on Thursday its revenue growth had slowed late last year led to a sell-off in parts of Hong Kong’s tech sector.

Futures tracking the blue-chip S&P 500 fell 0.7 percent, while contracts tracking the tech-heavy Nasdaq fell 0.4 percent. The financial sub-index of the S&P 500 fell 3.9 percent on Thursday.

US Treasuries were higher with the yield on the 10-year note, which moves inversely with price, slipping 0.1 percentage point to 3.83 percent after falling 5 basis points the previous day. Two-year contracts, which are more sensitive to monetary policy, fell 0.1 percentage point to 4.8 percent.

The dollar index, which measures the greenback against a basket of six peer currencies, was unchanged. The euro was flat and the pound sterling was up 0.1 percent, both against the dollar.

Brent crude fell 0.9 percent to $80.88 a barrel, while WTI, the US equivalent, fell 1.2 percent to $74.83.

Additional reporting from Kana Inagaki in Tokyo, Kaye Wiggins in Hong Kong and Jennifer Hughes in New York