Asian stocks tumbled on Thursday, and investors bought gold, bonds and the dollar as fear of a banking crisis was reignited by fresh troubles at Credit Suisse, leaving markets on edge ahead of a European Central Bank meeting later in the day. Japan’s Nikkei fell 2% in early trade. Australian shares slumped 2% as well, led by losses for banking stocks, while miners dropped heavily too as the spectre of worldwide banking stress has traders getting out of all kinds of growth-sensitive assets.
Hang Seng futures were down 2%. Oil has slumped to 15-month lows. Gold touched a six-week high overnight. In New York the S&P 500 fell 0.7% but the focus was on banks and in Europe where Credit Suisse shares crashed 30% to a record low after its biggest shareholder, Saudi National Bank, said it could not provide further financial help.
Switzerland’s central bank pledged to fund Credit Suisse “if necessary,” which lifted Wall Street indexes from lows in afternoon trade, but the intervention isn’t exactly soothing market fears. The Swiss franc fell 2% in its steepest drop for seven years. In a joint statement, the Swiss financial regulator and the nation’s central bank said Credit Suisse “meets the capital and liquidity requirements imposed on systemically important banks. “They said the bank could access liquidity from the central bank if needed. The moves follow the collapse of U.S. lenders Silicon Valley Bank and Signature Bank in recent days which have sent financial markets on a roller-coaster ride.
The Bank of England was holding emergency talks with international counterparts the Telegraph newspaper reported on Wednesday. The Bank of England declined to comment. Expectations for a 50 basis rate hike in Europe have evaporated as markets radically rethink the global interest rate outlook in light of the banking jitters.
Money market pricing implies a less than a 20% chance of a 50 bp hike from the ECB, down from 90% a day earlier. Shares in big U.S. banks including JPMorgan Chase, Citigroup and Bank of America fell overnight, pushing the S&P 500 banking index down 3.62%.
Bonds rallied hard, driving two-year U.S. Treasury yields to their lowest since September at 3.72% at one point overnight. Benchmark 10-year yields fell 14 bps to 3.494%.The euro also dropped heavily overnight as the U.S. dollar surged, falling 1.4% to $1.0578. The flight to safety lent support to the yen and it rose 0.6% to 132.59 per dollar in Asia trade on Thursday.