European banking stocks extend decline as SVB collapse concerns persist

By Scott Kanowsky 

Investing.com -- European stock markets were mixed on Tuesday, with banks edging lower, as investors fret over an ongoing banking crisis in the U.S. and an uncertain path forward for monetary policy.

By 05:00 ET (09:00 GMT), the pan-European STOXX 600 was up by 0.33% following a slide in equities in Asia and the U.S. The FTSE 100 in the U.K. dipped by 0.15%, while the CAC 40 in France rose 0.29% and the DAX index in Germany gained 0.53%.

The Euro Stoxx Banks index decreased by a little over 0.1%, adding on to a steep decline on Monday.

Japan's Nikkei 225 provided a weak handover to Europe, with the index dropping by over 2% as markets worried over the exposure Japanese financial firms have to U.S. bonds. Other bank-heavy indexes logged heavy losses, with South Korea’s KOSPI down nearly 2%, while Indonesia’s Jakarta Stock Exchange Composite Index led losses across Southeast Asia with a 1.6% dip.

China’s Shanghai Shenzhen CSI 300 and Shanghai Composite indexes lost 0.8% each, while Hong Kong’s Hang Seng index slid 1.8% as optimism over more government stimulus measures was largely offset by heavy selling in local bank stocks.

U.S. banking shares plummeted in overnight trade as investors grew concerned that more shockwaves could ripple through the sector after the downfall of Silicon Valley Bank (NASDAQ:SIVB) last week. Losses in bank stocks persisted even as the government intervened with emergency liquidity and reassurances of support.

The bank rout also spurred increased bets that the Federal Reserve will soften its hawkish stance to prevent further economic damage.

Focus is now on U.S. consumer price index inflation data, due later in the day, for more cues on how the central bank could potentially proceed with monetary policy. Fed Fund futures prices show that markets have abandoned bets on a 50 basis point hike by the Fed next week, with a majority of traders now positioning for a 25 bps raise.

Meanwhile, the European Central Bank is set to meet on Thursday, and is still expected to hike interest rates by another 50 basis points after recent data showed that underlying inflation in the Eurozone remained elevated.

In corporate news, Credit Suisse Group AG (SIX:CSGN) said that it had identified a "material weakness" in the internal controls over its financial reporting process, as the embattled lender unveiled its delayed annual report. Shares slumped by nearly 4%.

Volkswagen AG (ETR:VOWG_p) shares were in the red as well after the company announced a sweeping five-year, $193 billion investment plan that partly aims to allow the German carmaking giant to manufacture its own batteries.

Elsewhere, oil markets declined with traders looking ahead to the inflation data and gauging the outcome of the crisis surrounding the failure of SVB. U.S. crude futures traded 1.82% lower at $73.44 a barrel, while the Brent contract moved down by 1.7% to $79.40 a barrel.

Additionally, gold futures fell 0.45% to $1,907.80/oz, while EUR/USD traded 0.35% lower at 1.0691.