Market jitters return as cost of insuring against Deutsche Bank collapse soars
Shares in the German banking giant dropped by around 14% on Friday morning.
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Your support makes all the difference.Global stock markets picked up their losing streak again on Friday as bank shares started tanking after the cost of insuring against the default of Deutsche Bank soared.
The German bank’s shares had dropped by more than 14% before midday on Friday and credit default swaps – which are used by Deutsche’s bondholders as insurance should it fail – soared.
It helped spark a massive global sell-off in the banking sector. In the UK Barclays, NatWest and Standard Chartered saw their shares fall by around 6% before midday.
The drops pushed these banks to the bottom of the FTSE 100 – the index of Britain’s biggest companies – and helped reduce the value of the FTSE by as much as £42 billion.
The FTSE dropped by as much as 2.2% or 164 points, wiping out the small recovery seen in the last week as global authorities stepped in to calm markets.
Deutsche’s woes come two weeks after the collapse of Silicon Valley Bank – one of the top 20 banks in the US – and days after UBS agreed to buy under-pressure Credit Suisse.
Global governments have hoped to calm the markets by guaranteeing deposits in the failed US bank and brokering a deal for the Swiss giant.
But investors clearly remain unconvinced that enough has been done.
“A see-saw session on Wall Street overnight spoke to an edgy market mood and the FTSE 100 started the day firmly on the back foot on Friday,” said AJ Bell investment director Russ Mould.
It is difficult to see a path through the current turmoil around inflation, rates, geopolitical tensions and the recent banking crisis which doesn’t involve some pain
“Barclays topped the losers’ list, reflecting the tricky position for the banks, with some European shares in the sector chalking up big losses on lingering fears of contagion and the threat of regulatory intervention.
“It is difficult to see a path through the current turmoil around inflation, rates, geopolitical tensions and the recent banking crisis which doesn’t involve some pain.”
The gloom comes despite statistics on Friday morning showing a big jump in UK retail sales last month, and separate purchasing managers index (PMI) data showing the private sector has been growing so far in March.
But the PMI data showed that while the UK private sector as a whole is growing, the same cannot be said for manufacturers.
“European PMI data shows a big divergence between the services and manufacturing sector,” Ms Mould said.
“It could be the latter is a canary in the coal mine for a more pronounced economic slowdown.”
Bank of England governor Andrew Bailey said on Thursday that the UK looked increasingly on track to avoid a recession.
The Bank upgraded its forecast for the second quarter of this year to see a small increase in GDP rather than the 0.4% drop it had previously expected.