European bank shares fell the most in more than a year on Monday and bond markets saw a huge appreciation of bets on rate hikes as global efforts to limit the fallout from the Silicon Valley Bank (SVB) collapse failed to calm fears.
The dollar also fell, as Wall Street heavyweights such as Goldman Sachs (NYSE:GS), predicted the U.S. Federal Reserve would no longer raise interest rates next week, ending the biggest three-day hike in short-term Treasuries since 1987.
The European banking index plunged 6 percent, after falling 3.8 percent on Friday. London-listed HSBC fell 1.45 percent after it announced it would acquire the British subsidiary of Silicon Valley Bank for a symbolic 1 pound ($1.21).
Over the weekend, the Federal Reserve and the U.S. Treasury announced a series of measures to stabilize the banking system and said SVB depositors would have access to their deposits on Monday.
The Fed also said it would make additional funds available through a new “Term Bank Financing Program,” which would offer loans of up to one year to depository institutions, backed by Treasuries and other assets these institutions own.
U.S. authorities also intervened in New York’s Signature Bank, the second bank failure in a matter of days.
Monday’s drop saw more than 99% of companies listed on the European benchmark STOXX 600 will operate at a loss. Only three stocks bucked the sell-off, Qinetiq, Reckitt and Vantage Towers, which rose 0.4%, 0.2% and 0.1%, respectively.
Wall Street futures markets offered a glimmer of hope, as the benchmark index, the S&P 500, would open fractionally to the upside.
Federal Reserve funds futures soared to rule out any possibility of a half-point hike, up from 70% before last week’s SVB news. Instead, futures implied about a 14% chance that the Federal Reserve will keep rates steady.
The yield on two-year Treasuries rose 7 basis points at 0958 GMT to 4.63 percent, far from last week’s peak of 5.08 percent. Yields are down 66 basis points in just three sessions, a drop not seen since the Black Monday market crash of 1987.
In the foreign exchange markets, the Dollar Index, which measures the greenback’s performance against a basket of six currencies, fell 0.3 percent. Sterling and the euro rose about 0.2 percent, while the Japanese yen gained more than 1 percent.
The gold It also added nearly 1 percent to $1,885 an ounce, after rising 2 percent on Friday. The prices of the petroleum lost more than 1.5%, with the Brent at 81.48 a barrel and U.S. crude at $75.28 a barrel.