Wall Street’s major indexes traded lower on Friday, weighed by financial stocks, as concerns in the banking sector were rekindled after German lender Deutsche Bank’s (DB) cost of default insurance spiked.
The Nasdaq Composite (COMP.IND) slid 0.9%, the S&P 500 (SP500) fell 0.8%, and the Dow Jones Industrial Average (DJI) declined 0.7%. However, all three indexes are on track for weekly gains.
Deutsche Bank (DB) fell 12% in Frankfurt (after two previous down sessions) after credit default swaps spiked.
Treasury yields tumbled, mirroring European government yields, as cash flowed to safety. The 10-year Treasury yield (US10Y) fell 5 basis points to 3.35%. The 2-year yield (US2Y) dropped 10 basis points to 3.70%.
The 10-year German bund yield lost 8 basis points to 2.11%, while the DAX (DAX:IND) lost 1.6%.
“Deutsche’s (DB) business doesn’t look great, but it’s priced attractively for a turnaround,” said SA contributor Logan Kane. “However, if the market decides that Deutsche is a bad risk and makes it difficult or impossible for the bank to raise capital, then things can spiral downward.”
The KBW Nasdaq Bank Index (BKX) dropped 2.2% on Friday. The declines in financial stocks were driven by big banks including: Morgan Stanley (MS) -4.3%, Wells Fargo (WFC) -3.4%, JPMorgan Chase (JPM) -2.7%. The S&P 500 Financials index was down 1.7%.
Meanwhile, the chance of no hike at the Federal reserve’s May meeting rose to 90%, according to fed funds futures. The chance of a quarter-point rate cut in June jumped sharply to 52.1% from 30% on Thursday.
On the economic calendar February durable goods figures dropped, while the U.S. Flash Composite PMI unexpectedly strengthened in March.
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