European stocks lower; contagion fears hit banking sector hard

© Reuters.

By Peter Nurse 

Investing.com - European stock markets slumped Monday, dragged lower by the losses in the banking sector on concerns of potential contagion from the collapse of U.S. lender SVB Financial Group.

At 05:15 ET (09:15 GMT), the DAX index in Germany traded 2.2% lower, the CAC 40 in France dipped 1.9% and the FTSE 100 in the U.K. fell 1.7%.

The U.S. authorities rushed over the weekend to announce they would cover all depositors at Silicon Valley Bank (NASDAQ:SIVB), after the lender failed last week, and the same for SignatureBank, which also collapsed over the weekend.

The Federal Reserve also made it easier for banks to borrow from it in emergencies, in an attempt to prevent these collapses from having wider repercussions through both the tech and finance industries.

This has helped U.S. equity futures trade higher Monday, but the tone is less optimistic in Europe amid concerns that the impact of the second-biggest lender to fail in U.S. history could have serious repercussions across the pond.

Shares in some of the region's biggest lenders were sharply lower, with Commerzbank (ETR:CBKG) dropping 7.8%, Banco Santander (BME:SAN) down 4.6% and UniCredit (BIT:CRDI) off 4.4%.

HSBC (LON:HSBA), the region’s largest bank based on assets, agreed to purchase the U.K. subsidiary of SVB for just £1 (£1=$1.2077), rescuing a key lender for technology start-ups in Britain. Its stock fell 3.2%.

This shock to the finance system has raised speculation the Federal Reserve will pause its rate hiking cycle when it meets later this month. 

However, the European Central Bank, which meets on Thursday, is still widely expected to hike interest rates by another 50 basis points after recent data showed that underlying inflation in the Eurozone remained elevated.

In other corporate news, Novartis (SIX:NOVN) formally launched its new share buyback program, with the Swiss pharmaceutical giant set to spend up to CHF 10 billion ($10.90 billion) repurchasing its shares over the next three years.

German software group SAP (ETR:SAPG) agreed to sell its stake in data analytics firm Qualtrics for $7.7B.

Oil prices edged lower Monday, giving up earlier gains following a Reuters report that the Biden administration will approve a major oil drilling project in Alaska.

The project is expected to produce about 600 million barrels of oil equivalent over its life, peaking at 180,000 barrels of oil per day, ConocoPhillips said on its website.

Crude prices had benefited earlier Monday from the drop in the U.S. dollar on the raised expectations that the Fed will temper its monetary tightening policy going forward.

The dollar index, which tracks the greenback against a basket of six other currencies, fell to two-week lows, making oil cheaper for holders of other currencies.

By 05:15 ET, U.S. crude futures traded 0.8% lower at $76.08 a barrel, while the Brent contract fell 0.7% to $82.19. 

Additionally, gold futures rose 1.2% to $1,889.90/oz, while EUR/USD traded 0.3% higher at 1.0677.