Global equities fall, gold surges as banking worries linger

NEW YORK, March 18 — Investor sentiment remained fragile yesterday despite massive rescue for the banking sector, leaving global equities under pressure while gold prices were poised for their largest one-week rally since March 2020.

US Treasury yields extended their slide, and oil prices dove to 15-month lows.

Data showed March US consumer sentiment fell for the first time in four months.

In a crisis that began with the collapse of US-based Silicon Valley Bank last Friday, investors lost confidence in US regional banks and Credit Suisse in Europe.

Risk appetite waned yesterday after showing signs of recovery on Thursday. Credit Suisse’s chief executive said on Friday the bank was working hard to stem customer outflows, although this could take time. Credit Suisse shares resumed their decline.

Analysts say the worry about a possible banking crisis is far from over despite a group of major banks injecting US$30 billion (RM134.5 billion) in deposits into First Republic Bank, a mid-sized US lender, on Thursday.

The MSCI world equity index, which tracks shares in 49 nations, fell 0.55 per cent.

European shares erased early gains and had their steepest weekly drop in five months, with the pan-European STOXX 600 finishing down 1.3 per cent lower. It was under pressure from bank, insurance and financial services stocks.

European Central Bank (ECB) supervisors do not expect contagion for euro zone banks from the market turmoil, a source familiar with the content of an ad hoc supervisory board meeting this week told Reuters.

The Dow Jones Industrial Average fell 384.57 points, or 1.19 per cent, to 31,861.98, the S&P 500 lost 43.64 points, or 1.10 per cent, to 3,916.64 and the Nasdaq Composite dropped 86.76 points, or 0.74 per cent, to 11,630.51.

Over the last two weeks, the S&P Banking index and the KBW Regional Banking index plunged by 4.6 per cent and 5.4 per cent, respectively, their largest two-week drops since March 2020.

The yield on benchmark 10-year Treasury notes fell to 3.423 per cent versus 3.583 per cent previously. The two-year yield, which rises with traders’ expectations of higher Fed fund rates, fell to 3.8354 per cent from a previous close of 4.13 per cent.

Germany’s 10-year government bond yield DE10YT=RR dropped to 2.069 per cent, its lowest since the start of February, late in the session.

The ECB raised rates 50 basis points on Thursday, sticking to its pledge to fight inflation even as some investors called for a pause in the rate-hiking cycle until the banking turmoil eases.

Markets are pricing in a 25 bps increase by the US Federal Reserve when it meets next week, down from previous expectations for a 50 bps increase.

Fed data on Thursday showed banks sought record amounts of emergency liquidity in recent days, which helped undo months of central bank effort to shrink the size of its balance sheet.

“The fact that the Fed has been very proactive in terms of opening the liquidity tap is potentially useful and that’s stabilised things in the short term at least,” said Guillaume Paillat, multi-asset portfolio manager at Aviva Investors.

“It’s potentially a more stable environment, because it feels like we’ve passed the crisis point and things should normalise a bit.”

The University of Michigan’s preliminary March reading on the overall index of consumer sentiment came in at 63.4, down from 67 in the prior month. Economists polled by Reuters had forecast a preliminary reading of 67.0. But households expected inflation to subside over the next 12 months and beyond.

“As the economy slows and inflation remains a headwind, consumers are showing signs of retreating under the pressure. Inflation expectations are falling, giving the Fed some flexibility in the future path of rate hikes,” said Jeffrey Roach, Chief Economist for LPL Financial in Charlotte, North Carolina.

Manufacturing continued to struggle under the weight of higher borrowing costs.

Spot gold prices rose 3.01 per cent to US$1,976.84 an ounce after touching their highest since April. US gold futures gained 2.6 per cent to settle at US$1,973.50.

Bitcoin also rallied on safe-haven buying, hitting a nine-month high.

The euro was up 0.5 per cent on the day at US$1.066, having gained 0.79 per cent in a month, while the dollar index, which tracks the greenback against a basket of currencies of other major trading partners, was down at 103.9.

The risk-off sentiment also hit oil prices. At their session low, both benchmarks were down more than US$3. Brent crude, the global benchmark, fell nearly by 12 per cent in the week, its biggest weekly fall since December. US futures fell 13 per cent since Friday’s close, its biggest since last April. — Reuters