Bank stock suspensions spread fear across financial markets

As Chancellor Jeremy Hunt delivered his Spring Budget, the FTSE 100 extended losses for the day to 3%. Our City writer explains what's behind the latest plunge in global stock markets.

Market anxiety deepened today as the spread of banking turmoil to Europe left the heavily sold FTSE 100 index back below where it started the year.

The latest heavy selling dashed hopes that the crisis involving tech lender Silicon Valley Bank (NASDAQ:SIVB) had been contained after three days of turbulence for global markets.

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London’s FTSE 100 rallied yesterday, but expectations for a steadier Budget day session were derailed in dramatic fashion by the suspension of trading in several European banking stocks.

The halt was triggered by a 20% slide for Credit Suisse (SIX:CSGN) shares to an all-time low after its leading Saudi shareholder declined more support for the troubled lender. Italy’s UniCredit SpA (XETRA:CRIN) and France's Societe Generale SA (EURONEXT:GLE) were also among those banks temporarily suspended Wednesday.

The developments deepened the global banking crisis, sending shares in Barclays (LSE:BARC) down 13p, or nearly 9% to their lowest level since January 2021 and continuing the slump for London-listed Standard Chartered (LSE:STAN), Lloyds Banking Group (LSE:LLOY) and NatWest Group (LSE:NWG).

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The Europe-wide sell-off caused London’s top flight index to fall by more than 3% to below 7,400 for the first time since before Christmas. It had topped 8,000 less than a month ago, having started the year at 7,452.

The slump comes as traders worry that the collapse of Silicon Valley Bank signals that the lag effect of higher interest rates is now being felt.

These fears have darkened the economic outlook to leave Shell (LSE:SHEL) and BP (LSE:BP.) down 5% at levels last seen in early February, while miners including Glencore (LSE:GLEN) were also sharply lower today.

The slump comes amid an upturn in Wall Street’s fear gauge known as the Cboe Volatility index. The VIX has risen 36% over the past week and is heading back towards the levels seen in early October prior to the turnaround in stock market fortunes.

The index opened today above 28, whereas a position above 40 tends to be associated with a state of high fear such as during the early days of the pandemic.

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Volatility has been above 20 on a regular basis since the start of Covid, rather than returning to lower levels of 10-15 as it has done in the past following previous events including the dotcom crash or the financial crisis in 2008.  

Today’s loss of confidence also hit mid-cap investors as the FTSE 250 index slid to its lowest level since December at 18,656, a fall of 472 points. Virgin Money (LSE:VMUK), Harbour Energy (LSE:HBR) and Tullow Oil (LSE:TLW) were among the biggest fallers.

On Wall Street, futures markets are pointing to a bleak session, with the Dow Jones Industrial Average set to open more than 500 points or 1.7% lower and the S&P 500 priced for a 1.75% decline. Both rallied yesterday on hopes the banking crisis had been brought under control.