US stock futures were holding steady Monday after an extraordinary move by US financial regulators to restore confidence in the country’s banking system.
S&P 500 futures gave up their overnight gains to trade flat and Nasdaq futures were 0.32% higher Monday morning. Dow futures, which rose in early morning trade, fell back 0.28%.
On Sunday, the Biden administration promised that customers of the failed Silicon Valley Bank (SVB) and Signature Bank would have access to all their money starting Monday.
In a joint statement, US Treasury Secretary Janet Yellen, Federal Reserve Chair Jerome Powell and Federal Deposit Insurance Corporation Chairman Martin J. Gruenberg said the FDIC will make SVB and Signature Bank’s customers whole.
In a related action, the government shut down Signature Bank, a regional bank that was teetering on the brink of collapse in recent days.
By guaranteeing all deposits, even the uninsured money that customers kept with the banks, the government aimed to prevent more bank runs and to help companies that deposited large sums with the banks to continue to make payroll and fund their operations.
The US Federal Reserve will also make additional funding available for eligible financial institutions to prevent runs on similar banks in the future.
Investors around the world visibly exhaled after the announcement, according to Stephen Innes, managing partner of SPI Asset Management, who likened it to “the calvary” coming to the rescue.
“Cross-asset traders of all stripes are heaving a sigh of relief as bank runs have a tendency to catch on globally,” he told CNN.
“It’s not so much the risk of bank defaults as it is the investor fear that is contagious, so the backstop reduces investor panic mode.”
European stocks down
Intervention by the US authorities to stem the fallout from SVB’s collapse has done little to calm investors across the pond.
European stocks ticked down in early morning trade as a selloff in bank stocks, which began Thursday, continued apace.
Europe’s benchmark Euro Stoxx 600 (SXXL) dropped 2.5% Monday morning, while London’s FTSE 100 (UKX) lost 2.2%.
The Stoxx Europe 600 Banks index, which tracks 42 big European banks, fell 5%, clocking its biggest fall since March 2021.
Stocks sank despite an announcement by HSBC (FTRXX) Monday that it had bought the UK arm of SVB for £1 ($1.2), saying the business’s customers could “continue to bank as usual” and that their deposits were safe.
The FTSE-listed bank’s stock fell 3.5% in European trade.
Asian markets mixed
Asia-Pacific stocks were mixed as investors digested news of the US regulatory efforts.
The losses were led by Japan’s benchmark Nikkei (N225) index, which closed 1.1% down. South Korea’s Kospi (KOSPI) initially fell in morning trade, before reversing course to stand 0.7% higher. In Australia, the S&P/ASX 200 ended 0.5% lower.
In Hong Kong, the Hang Seng Index (HSI) closed up 2%, while the Shanghai Composite (SHCOMP) was 1.2% higher.
Innes attributed the mixed reaction to other factors weighing on markets, including a strong yen in Japan “weighing on exporters” there and continued uncertainty among global investors over the Fed’s interest rate policy.
Bank shares in Asia were under pressure Monday, following a heavy rout for their US and European counterparts late last week.
Standard Chartered (SCBFF), which is headquartered in London but makes most of its money in Asia, dropped 0.6% in Hong Kong. Singapore’s DBS, Southeast Asia’s largest lender, dipped 0.8%.
US markets had tumbled more than 3% Thursday and Friday as investors feared more bank failures and systemic risk for the tech sector. SVB was hugely important to the technology industry for decades, specializing in providing funding to startups.
“After their selloff on Friday, US stock market futures are looking positive currently,” Robert Carnell, ING’s regional head of research for Asia Pacific, and Iris Pang, chief economist for Greater China, wrote in a note to clients Monday.
“So it looks for now as if the Fed’s rapid action may have forestalled a larger problem.”
SVB collapsed Friday in a stunning and rapid turn of events. The massive tech lender had faced liquidity concerns, which triggered a huge bank run, ultimately leading to the second-largest failure of a financial institution in US history.
Investor sentiment in Asia is “likely to remain fragile in the near term against the background of US banking sector concerns,” Nomura analysts wrote in a report Monday.
“In the very near term, market focus will likely remain on the fallout from the failure of SVB.”
— David Goldman contributed to this report.