The FTSE 100 and European stocks were lower this Friday as banking stocks headed for their largest one-day fall in nine months and fears over the health of banks’ bond portfolios rattled nervous investors.
Friday’s February jobs print blew past expectations once again, as the US economy added 311,000 jobs, a slower pace from the January’s blowout number, but higher than estimates from economists for job gains of 225,000. The unemployment rate edged up to 3.6%, and wage growth rose 4.6% on a yearly basis, slower than expected.
The sell-off in London came after US lenders were sent into a tailspin on Thursday. Investors wiped $52.4bn (£43.8bn) off the market value of the four largest US banks by assets on Thursday amid a widespread sell-off of financial stocks that analysts linked to investor fears over the value of lenders’ bond portfolios.
The firm's shares collapsed 60% in New York as it said it lost $1.8bn following the sales. The news came as crypto focused bank Silvergate (SI) said it planned to close as the sector faces more turmoil.
It's a bloodbath in European banks. pic.twitter.com/BwLdbFc565
— Julianna Tatelbaum (@CNBCJulianna) March 10, 2023
"An earthquake in Silicon Valley led to aftershock on Wall Street and the tremors could still be felt in London on Friday morning," AJ Bell investment director Russ Mould said.
“Lending to tech start-ups is at the racier end of finance and in that context Silicon Valley Bank’s announcement of a $2.25bn rescue share issue, after a period when appetite from lenders and investors towards this part of the market has dried up, should not have come as a major surprise.
“However, in a heavily interconnected banking industry it’s not so easy to compartmentalise these sorts of events which often hint at vulnerabilities in the wider system. The fact SVB’s share placing has been accompanied by a fire sale of its bond portfolio raises concerns.
“Lots of banks hold large portfolios of bonds and rising interest rates make these less valuable – the SVB situation is a reminder that many institutions are sitting on large unrealised losses on their fixed-income holdings."
Investors also did not seem convinced by news by the Office for National Statistics that the UK economy grew 0.3% in January, ahead of analysts' expectations of a 0.1% rise.
Yael Selfin, chief economist at KPMG UK, fears a UK recession is “still on the cards” despite the brightening economic outlook.
She said: “The marked fall in wholesale gas prices and easing of supply chain disruptions provided a welcome boost to economic prospects at the start of 2023.
"But this may not be sufficient to stave off a recession in the first half of this year, as consumer spending remains weak with households continuing to be squeezed by elevated prices and higher interest rates.
“However, we expect the current downturn to be shallower and shorter than previously thought, with stronger business sentiment and a steady fall in inflation expected to support the recovery in the second half of the year.
“Although our latest forecasts see the UK set for a 0.4% fall in GDP this year and only 0.6% growth in 2024 overall due to the weak start and the lack of fiscal momentum and business investment to bolster medium term recovery."
Meanwhile, Brent crude (BZ=F) gained and was trading at around $81 per barrel.
In Asia, Tokyo’s Nikkei 225 (^N225) lost 1.67% to 28,143 points, while the Hang Seng (^HSI) in Hong Kong gained 3.09% to 19,309. The Shanghai Composite (000001.SS) also lost ground, tumbling 1.40% to 3,230 points.