Markets shudder as SVB contagion spreads

European and US markets were in turmoil with most stocks in the red while US treasury yields plunged amid fears over the sudden collapse of Silicon Valley Bank although the Hong Kong stock market closed higher yesterday.

European stocks were on course for their worst day in almost three months, as the region's banking stocks continued to tumble even after authorities stepped in to cap the fallout from the bank's collapse.

The pan-European STOXX 600 index fell 2.29 percent and eyed its biggest percentage decline in December 2022. Banks, automakers and insurers were among the top decliners.

More than 99 percent of shares in STOXX 600 were in red at 20.30 pm, with only about 40 stocks up.

In the United States, the Dow Jones started 0.89 percent lower, the Nasdaq was 0.87 percent lower, and the S&P 500 was nearly 1 percent lower.

Wall Street was down even after the Federal Reserve and US Treasury announced a range of measures to stabilise the banking system and said SVB depositors would have access to their deposits on Monday.

European banking stocks dropped 5.7 percent, on course for their worst two-day selloff since the Russia-Ukraine war broke out early last year.

Worries emerged around the resilience of the sector's balance sheet in the face of SVB's collapse. However, the European Central Bank is not planning an emergency meeting of its banking supervisory board on Monday, a senior source told Reuters.

Meanwhile, the yield on the 10-year Treasury also dipped 23.6 bps to 3.459 percent, while that on the 2-year Treasury fell 50.8 basis points to 4.08 percent around 20:30 pm GMT+8. The yield had dropped at a pace last seen in the global financial crisis in 2008.

The yields declined as investors drastically scaled back the odds of a big rate increase this month from the Fed after the collapse of SVB.

Goldman Sachs said it expects no rate hike in light of the recent stress in the financial sector.

The Hong Kong stock market was an exception.

The benchmark Hang Seng Index gained 1.95 percent, or 376 points, to 19,695 points yesterday, led by the tech shares, after US regulators stepped in to back depositors exposed to the SVB collapse.

Tencent (0700) jumped 3.98 percent and Alibaba (9988) climbed 2.59 percent, after Premier Li Qiang said private companies will have a better development environment.

But the positive sentiment is not expected to last for long when fears over the SVB fallout are spreading across global markets.

Hang Seng Index futures were down by 1 percent or 196 points at 8.30 pm.