US markets experienced a rocky morning on Friday after tech lender SVB Financial Group revealed it needed to sell billions of dollars worth of assets to remedy a funding shortfall. News that the company could be facing the prospect of a bank run sent its shares down 60%, while Treasury yields also dropped following the release of a jobs report that revealed wage increases that were lower than expected. This led to fears that inflation was cooling, which could alleviate pressure on the Federal Reserve to raise interest rates. As a result, traders revised down the previously predicted 80% chance of an interest rate hike at next month’s policy meeting, to a 50% chance.
Though payrolls increased by 311,000 jobs in February, exceeding Wall Street’s expectation of 205,000 jobs added, the focus was on smaller-than-anticipated wage gains in the same period. Oil prices also fell on Friday after some issues surrounding global crude supplies eased with the possibility of the US granting waivers to nations from Iranian sanctions. ConocoPhillips dropped by 2.5%, and Exxon and Chevron by 1% each. The Dow Jones Industrial Average, which had gained 440 points or 1.8% earlier in the week, was down 87 points or 0.3% on Friday. The S&P 500 fell by 0.4% while the Nasdaq Composite dropped 0.5%.
As concerns about the US banking sector grew in the wake of the SVB news, US bank stocks saw their largest two-day decline in around three years, with JP Morgan Chase shares down 0.7%, Citigroup down 1.5%, Wells Fargo down 2.1% and Bank of America down 3.9%, though Morgan Stanley rose 1.7% after announcing outgoing CEO Lloyd Blankfein would retire in January 2019. Many investors were worried about larger risks in the banking sector in the wake of the SVB news. SVB itself had sparkled as one of the top-performing bank stocks, having tripled in value over the past three years, primarily thanks to investments in Silicon Valley start-ups which demonstrated better performance records than diversified banks.
Since Wednesday, when stock markets had soared after China announced it would be prioritising US trade talks, there have been several developments concerning trade tariffs, with Republican lawmakers urging President Trump to exempt Canada and Mexico from his planned tariffs on steel and aluminium imports. The tariffs have also been met with opposition from leaders including Japanese Prime Minister Shinzo Abe and German Chancellor Angela Merkel.