Global Markets Continue to Tumble

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US markets – Bond yields declined sharply on Monday. 2-year treasury yields tumbled 38 basis points to 4.213%, marking their biggest two-day slide since 1987. Meanwhile, the 10-year treasury yields slipped 16.3 basis points to 3.542%. The collapse of Silicon Valley bank and Signature Bank spurred expectations of a slowdown in the pace of monetary policy tightening. This has led markets to eliminate the possibility of a 50-basis point rate hike in March. Nearly 96% of the traders are pricing in a 25-basis point interest rate decision. Most banking stocks traded lower in premarket trading on Monday. Meanwhile, the US Dollar index its heading for its worst three-day decline in two months. Investors now await the US CPI print for February due tomorrow. A hotter-than-expected print could lend support to the dollar. Sentiment towards US equities improved somewhat after US bank regulators said they’d not only make depositors whole at both ailing banks, but also provide a lending facility to backstop eligible US lenders. Treasury Secretary Janet Yellen reassured investors that her office would protect all depositors at SVB. Nonetheless, US indices erased early gains as investors sought the safety of bonds. Meanwhile, Wall Street’s fear gauge, namely, the Cboe Volatility index surged to its highest level so far this year.

European markets– The Stoxx Europe 600 index declined almost 3%, marking its biggest drop since December 2022. A gauge of banking stocks slipped 6% as HSBC Holdings tumbled 2% after its purchase of SVB’s UK unit. Meanwhile, trading in UniCredit was halted after its shares fell 4.9%. Shares of Credit Suisse plummeted 15%. The ECB is set to announce its interest rate decision on Thursday where investors are anticipating a 50-basis point interest rate hike.

Asian markets– Asian equities climbed higher during early trading on Monday after Goldman Sachs said the Fed was likely to leave the federal funds rate unchanged at its upcoming FOMC meeting in March. Nonetheless, the rally lost steam amidst growing concerns of the impact of high interest rates on banks’ balance sheets hurt sentiment. The MSCI Asia Pacific index declined 1.3%, reaching its lowest level since 20% in December. A gauge tracking Japan’s banking sector tumbled 4% on Monday following a decline of 5.4% on Friday. Meanwhile, China retained most of its members on the economic leadership team, including the governor of the central bank. This led investors to bet on policy continuity in the long run.

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