S&P 500 futures were down more than a full percentage point this morning, after markets in Asia and Europe sold off heavily in reaction to two small regional U.S. banks that reported exposure to a potentially fraudulent loan worth only $60 million.
Investors are spooked by the First Brands scandal, in which the car parts supplier took more than $10 billion in loans on the private credit market and then went bankrupt.
In Europe, the Stoxx 600 and the FTSE 100 both lost more than a full percentage point immediately after they opened.
ING’s Francesco Pesole noted, “The contagion to other risk assets shows not only that markets are still sensitive to regional bank concerns (a legacy of SVB’s 2023 collapse), but potentially to the broader credit market, which has been operating on exceptionally tight spreads over the past few months.”
It is even hurting the dollar, which was down 0.08% this morning and has lost 0.73% of its value against foreign currencies in the last five days, as measured by the DXY index.
“Unlike in 2023, the risks appear more isolated this time, but they could feed into a narrative that the U.S. business environment and credit quality are in a poorer state than what data suggests, perhaps also due to AI distortions. Expect great scrutiny over upcoming regional bank earnings, with any further spillover into U.S. stocks set to extend the dollar sell-off,” Pesole said.
Here’s a snapshot of the markets ahead of the opening bell in New York this morning:
