Bank stocks fell on Monday after an inflammatory sell-off of shares by a U.S. investment group led to loss warnings from two major investment banks and left traders bracing for further repercussions .
Credit Suisse shares plunged nearly 14% after the bank announced it faces heavy losses when his client Archegos Capital Management was forced to proceed with a huge asset unwinding. Japanese bank Nomura has also warned of a fund-related blow, causing its stock to fall 16% in the biggest sell-off for the company on record.
This follows a $ 20 billion sale on Friday triggered by Archegos, a private investment firm founded by former hedge fund manager Bill Hwang.
Shares of major US banks underperformed, with Morgan Stanley closing 2.6% lower and Citigroup 2%. European par Deutsche Bank fell 3.3 percent.
Matt Stucky, equity portfolio manager at Northwestern Mutual, however, said bank stocks are unlikely to suffer long-term damage from the fallout from Archegos, despite “isolated volatility” in the sector on Monday.
“The larger themes are still totally intact – this is the reopening, these are the reserve versions,” he said. “There is a huge positive wind in the financial sector, which is why things have accelerated so quickly there from the summer of 2020.. . where we are today, where there is reason to be optimistic.
ViacomCBS, in which Archegos held an important position, fell 9% in the morning, even after losing half of its market value last week. Discovery, another share linked to Hwang’s fund, fell 5%. Both stocks subsequently rallied slightly, with Viacom falling nearly 7% and Discovery falling almost 2%.
The morning moves pushed the major US indices lower early in the trading day, before they started to recoup their losses. The blue-chip S&P 500 index slipped 0.1% on the day, while the technology-focused Nasdaq Composite fell 0.6%.
Tom Holland, of the Gavekal research house, warned that brokers could have acted quickly to reduce exposure to Archegos because they feared “further episodes of deleveraging”.
The haste with which banks reduced their exposure to Archegos “suggests that Friday’s deleveraging may not be a one-off case, but part of a developing pattern,” Holland said.
But others argued that the fallout could have been worse and that signs of contagion remained limited. “Given the broad market response, I think we can agree that the risk of contagion is manageable, which always concerns me when a large market player is in distress,” said Anik Sen, global head of equities. at PineBridge Investments.
“The macroeconomic and liquidity environments are strong right now,” he added, alluding to the huge amount of fiscal stimulus filtering through the economy and the loose monetary policy being followed by the US Federal Reserve.
In Europe, the benchmark Stoxx 600 equities closed 0.2% higher and the UK’s FTSE 100 fell 0.1%.
Government bonds also fell as lingering concerns about inflation in the United States dampened appetite for fixed income. The 10-year US Treasury yield, which moves inversely to its price, rose 0.03 percentage point to 1.7%. Germany’s Bund equivalent yield rose 0.04 percentage point to minus 0.32%.
The dollar, measured against a basket of currencies, climbed 0.2% to trade at its highest level since late November, before retreating slightly.
Gold fell about 1% Monday to $ 1,711 per troy ounce, as traders anticipated a recovery in the U.S. economy thanks to President Joe Biden’s infrastructure spending program, which is expected to be unveiled on Wednesday.
The precious metal has fallen 8% this year on the back of a stronger dollar and rising US bond yields. Gold does not provide any return, which means it tends to suffer in an environment of rising return. A rally in global equity markets also limited the appeal of gold.
Silver also fell almost 2 percent to $ 25 an ounce, while palladium fell almost 6 percent to $ 2,535 an ounce.
Brent, the international oil benchmark, rose 0.7% to $ 65 a barrel after Ever Given, the container ship blocking the Suez Canal, was bailed out.