Asian shares slid, Treasuries extended gains and gold hit a new high on Friday as signs of credit stress at U.S. regional banks unnerved investors and had markets baying for more Federal Reserve policy easing.
European stocks looked set for a sharp fall at the open, with EURO STOXX 50 futures down 1% and FTSE futures 1.1% lower. Both S&P 500 futures and Nasdaq futures lost 0.6% ahead of more earnings from U.S. regional banks later in the day.
Overnight, Zions sank 13% after disclosing it would take a $50 million loss in the third quarter on two loans from its California division. Western Alliance's stock slumped 11% after it initiated a lawsuit alleging fraud by Cantor Group V, LLC.
"While the recent issues of the two lenders seems well contained, where there is smoke there is often fire and the remedy of the 2023 crisis has created a tinderbox for another banking flare-up," said Tony Sycamore, analyst at IG, referring to a series of bank failures that year which prompted the Fed to take extraordinary steps to stabilise the financial system.
The developments pummelled U.S. banking stocks and weighed on the U.S. dollar to the benefit of the yen and the Swiss franc.
Safe-haven Treasuries rallied further, with two-year yields down 3 basis points on Friday to a fresh three-year low of 3.3890% as investors priced in at least two more quarter-point rate cuts from the Federal Reserve this year.
The flight to safety saw gold hit a record of $4,378.69 per ounce. Bullion is set for a weekly gain of 8.5%, its biggest since September 2008 when the collapse of Lehman Brothers fuelled the global financial crisis.
Silver also hit a new peak.
Sentiment in equities has also taken a hit due to rising trade tensions between China and the United States. China on Thursday accused the U.S. of stoking panic over its rare earth controls, rejecting a White House call to roll back the curbs.
MSCI's broadest index of Asia-Pacific shares outside Japan dropped 1%, taking the week to negative territory. Japan's Nikkei lost 1.5% as its banking index tumbled.
Taiwan shares fell 1.1% even after chipmaker TSMC posted a record quarterly profit and issued a rosy forecast for spending on artificial intelligence.
Chinese blue chips dropped 1.5% and Hong Kong's Hang Seng tumbled 1.8%.
The credit worries and rate cut bets undermined the U.S. dollar, which slipped 0.2% on Friday to 98.10 against its major peers. It was on track for a weekly loss of 0.8%. [FRX/]
The yen and the Swiss franc gained most, up 0.9% and 1.2% for the week.
Bank of Japan Governor Kazuo Ueda said that the central bank would scrutinise various data in deciding whether or not to raise interest rates this month.
Oil prices extended losses, after falling 1% overnight as U.S. President Donald Trump said he and Russian President Vladimir Putin agreed to meet in Hungary soon to discuss ending the war in Ukraine.
U.S. crude fell 0.4% to $57.25 a barrel, while Brent was also off 0.3% to $60.87.
(Editing by Edwina Gibbs anda Kim Coghill)
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