4:05pm: Turbulent week draws to a close
US stocks reversed and shed their earlier losses in the late afternoon on Friday as investors’ banking fears abated.
After a turbulent week of trading, the S&P 500 closed up 0.5% at 3,968 points, while the Dow Jones and the Nasdaq had both added 0.3% at 32,212 points and 11,823 points respectively.
Oil prices also rose from their earlier lows, with WTI crude oil down 1.1% at US$69.20 and brent crude down 1.3% at US$74.91.
12:05pm: Deutsche Bank stock slides as company’s default insurance at highest since 2018
US stocks slipped in noon trading after Deutsche Bank’s credit default swaps jumped, but without an apparent catalyst, according to CNBC.
At midday, the Dow lost 30 points to 32,075, while the S&P 500 eased 3points at 3,946 and the tech-heavy Nasdaq fell 27 points to 11,761.
“Powell stuck with the Fed's narrative that there is still a path toward a soft-landing or returning inflation to target without pushing the economy into a recession,” Oxford Economics chief US economist Ryan Sweet wrote in a note.
“However, that path has become narrower because of the pressure on the banking system,” he added.
Other notable movers included shares of Activision Blizzard Inc, which gained more than 5% after European Union regulators said they were narrowing the scope of its probe into Microsoft's planned $75 billion takeover of the video game developer.
9:46am: Deutsche Bank shares drop
Shortly after the opening bell, the Dow was down 185 points, 0.6%, to 31,921, the Nasdaq Composite fell 71 points, 0.6%, to 11,716 and the S&P 500 dropped 25 points, 0.6%, to 3,923.
Deutsche Bank shares fell more than 6%, raising renewed fears about the wider banking sector.
Meanwhile, investors are grappling with what central banks on both sides of the pond will do going forward.
"The Fed, SNB and BoE all hiked interest rates this week, but the message from these banks was the same: more increases may be required, not will be, if inflationary pressures persist," said Fawad Razaqzada|, market analyst at City Index and Forex.com. "However, the markets have started to price in rate cuts from the second half of this year, even though the Fed Chair said this was not discussed at their FOMC meeting this week."
7:30am: Spillover concerns
Wall Street is expected to open lower amid ongoing concerns of further shocks to the global banking system following reports that UBS and Credit Suisse face a US Department of Justice investigation for allegedly helping Russian oligarchs evade sanctions and as Deutsche Bank's shares fell sharply.
Futures for the Dow Jones Industrial Average fell 1% in Friday pre-market trading, while those for the broader S&P 500 index shed 0.9%, and contracts for the Nasdaq-100 retreated 0.5%.
European banking share prices came under fresh pressure on Friday as a spike in the cost of Deutsche Bank’s credit default swaps (CDS) sparked renewed fresh concerns about the stability of the sector. The German bank’s additional tier one (AT1) bonds, an asset class that hit the headlines this week after the controversial write-down of Credit Suisse’s AT1s as part of its UBS rescue deal, also sold off sharply.
In the US, after a volatile session, the three major indexes were able to stay in positive territory at the close on Thursday as investor sentiment was boosted by Federal Reserve signals that its rate hike cycle is nearing its end. The Nasdaq Composite led the gains, up 1% at 11,787, with the S&P 500 up 0.3% at 3,949, and the DJIA up 0.2% at 32,105.
“The US stocks first fell then gained yesterday. The price action was, again, mostly driven by the bank stocks, both because of, and thanks to (US Treasury Secretary) Janet Yellen’s comments to US lawmakers,” commented Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
Yellen's comments followed a statement from the Treasury Secretary on Wednesday that ‘blanket insurance’ for banking deposits after the collapse of Silicon Valley Bank (SVB) wasn't on the table, causing renewed pressure on banks, especially on the US small regional banks, Ozkardeskaya noted.
"Then yesterday, Janet Yellen said that the US regulators are ready to take additional steps to protect deposits if needed," she said. "Her comments helped stocks recover early-session losses. JP Morgan, Goldman Sachs, and Citi rebounded after the comment. But trading in Asia hints that the stress over banks is not over just yet. HSBC lost more than 3% in Hong Kong, as news that UBS and Credit Suisse were among banks under the scrutiny of the US DoJ for having helped Russian oligarchs to evade sanctions."