US stocks bounce back after health of regional banks rattles global markets

Sell-off swept Asia and Europe in echo of America's 2023 regional banking crisis

A trader at the New York Stock Exchange. Analysts say the US regional banking sector is showing strain as credit concerns rise. AP

Wall Street stocks bounced back on Friday following conciliatory signals from the US towards China on trade, as worries about regional banks receded.

The main indexes nudged higher after volatile trading following US President Donald Trump saying he would meet his Chinese counterpart Xi Jinping in South Korea and that his proposed 100 per cent tariff on goods from China would not be sustainable.

Concern over credit risks at US regional banks also eased, after two auto sector bankruptcies reignited credit quality fears. On Friday, those banks – Salt Lake City-based Zions Bancorp and Phoenix-based Western Alliance Bancorporation – both rallied, along with other peer companies, suggesting investors are less fearful of systemic problems.

The concerns over the banks caused sell-offs in European and Asian markets before trading opened in the US, as did worries including US-China trade tension, government shutdown risks in Washington and stretched valuations following the AI-driven rally.

Analysts had said the situation resembled the US regional banking crisis in 2023 that led to the collapse of Silicon Valley Bank.

Zions said it took a $50 million hit from two loans given out by its California unit, while Western Alliance said it had initiated a lawsuit alleging fraud by Cantor Group V.

“The US regional banking sector shows visible strain amid mounting credit concerns after Zions Bancorp disclosed provisions of millions of dollars for loan losses and wrote off additional millions of dollars in bad loans due to irregularities in collaterals,” said Ahmad Assiri, a research strategist at broker Pepperstone.

“At the same time, Western Alliance reported attempts to resolve collateralised loans and ongoing collection actions against borrowers suspected of misrepresenting their guarantees also known as fraudulent documentations, deepening market perception that these incidents are not isolated but part of a growing trend of credit fragility. For now, these remain contained rather than systemic.”

Japan’s Nikkei settled 1.44 per cent lower while Hong Kong's Hang Seng index shed 2.5 per cent at market close on Friday. In other markets in Asia, China’s Shanghai Composite and Shanghai A share index both closed down 1.95 per cent. Taiwan's Taiex index also ended the day 1.25 per cent lower.

In India, the BSE 100 gained 0.34 per cent, while Australia’s S&P/ASX 200 index declined by 0.8 per cent.

European stock markets were also hit. In London, the FTSE 100 was down 1.3 per cent, while Paris’s CAC 40 fell 0.7 per cent and Frankfurt's DAX shed 2.18 per cent at 3.20pm UAE time.

In the Middle East, the Dubai Financial Market general index closed 0.6 per cent lower, while Abu Dhabi Securities Exchange main market ended 0.19 per cent down.

“UAE stock markets were under pressure during the last day of trading, impacted by a general risk-averse mood in global markets,” said Joseph Dahrieh, managing principal at forex broker Tickmill.

“Banking stocks were hit hardest following renewed worries about US regional lenders.”

JPMorgan Chase chief executive Jamie Dimon this week spoke about anxiety in the credit market following the bankruptcies of First Brands and subprime lender Tricolor.

“When you see one cockroach, there are probably more, and so everyone should be forewarned,” Mr Dimon said.

The broader picture suggests that US regional lenders are entering a testing phase in an environment of tight financial conditions, declining liquidity and renewed focus on asset quality as a key measure of balance sheet strength, according to Mr Assiri.

“The investor pullback is not alarming but highlights more cautious positioning as indices hover near historically rich valuations and as traders weigh rising trade tensions,” he said.

“Equities remain constructive over the longer term, yet the very short-term set-up faces a dual challenge of waning momentum and an information vacuum caused by the US government shutdown. The absence of key releases such as the non-farm payrolls report has made assessing the underlying strength of the economy harder.”

However, the market remains extremely volatile, said Fawad Razaqzada, market analyst at City Index and Forex.com.

“All it would take is a social media post by US President Donald Trump to flip trigger a bullish reversal in risk appetite. For that reason, I am a bit sceptical whether this will turn into a sharp correction,” he added.

Gold shining

Meanwhile, gold reached its biggest weekly gain in five years, surging along with silver on safe haven fears.

Bullion hit a fresh all-time high near $4,380 an ounce on Friday – declining to $4,260 later on – the most since March 2020. The gain this week is the biggest on record in dollar terms.

Gold’s more than 60 per cent surge this year is underpinned by central bank buying and inflows to exchange-traded funds. Traders are also betting on at least one jumbo US rate cut by year-end.