Global markets fall as credit stress rattles investors
Global stock markets slipped sharply after two US regional lenders disclosed exposure to millions of dollars in bad loans and alleged fraud. The developments sent shockwaves through Europe and Asia, fueling a rapid shift toward safer assets and a flight to gold, which reached a new high as investors weighed the implications for credit conditions in the world’s largest economy.
Regional banks under pressure deepen market jitters
In the United States, equities came under pressure as Zions Bancorporation announced it would write off about $50 million on two loans, and Western Alliance began legal proceedings over a $100 million bad loan. Zions shares tumbled more than 10%, while Western Alliance fell over 9%. Analysts cautioned that the incidents, though isolated in scale compared with the overall banking system, triggered memories of the regional bank stress that followed the collapse of Silicon Valley Bank in 2023.
“There are increasing signs of storm clouds gathering over markets,” said a Deutsche Bank analyst, highlighting concerns about potential credit quality issues after a long period of higher rates and growth in private credit. Market participants worried about a domino effect, especially given links to other stress points like a sub-prime auto lender’s bankruptcy last month.
Global equity selloff spreads across Europe and Asia
European indices slipped on Thursday, with London’s FTSE 100 down about 1.5% and France’s CAC 40 sliding around 1.5% before trimming losses. Germany’s DAX fell roughly 2%, while Spain’s Ibex dropped near 0.8%. The weakness extended into Asia, where Japan’s Nikkei 225 shed about 1.6% and Hong Kong’s Hang Seng declined around 2%, echoing the price action seen in the United States.
Analysts noted that the day’s declines reflect a broader credit stress narrative, as investors reassessed the resilience of business loan portfolios and the potential for hidden losses amid a bear market for riskier bonds and equities. With a government shutdown uncertainty lingering in the U.S. and geopolitical frictions between Beijing and Washington, risk sentiment remained fragile across major trading centers.
Gold hits a record as investors seek safe havens
Against this backdrop, gold surged to a record high near $4,378 per ounce, marking an eight-and-a-half percent weekly gain—the strongest weekly advance since the 2008 financial crisis. The metal’s rally underscored a broader shift into safe-haven assets as traders weighed the prospect of further credit stress and slower growth signals from the US banking sector.
Commodities and currency markets reflected similar risk-off dynamics, with investors recalibrating expected central bank policy paths amid mounting concerns about loan quality and liquidity. While some strategists cautioned that the move might be overly reactive to two bank reports, others argued that the events could force lenders to tighten underwriting standards and squeeze credit conditions for households and small businesses.
Market outlook: watching credit quality and policy signals
Industry observers emphasized that while the immediate spikes in volatility may fade, the core issue—credit quality among regional banks—remains a key uncertainty for the broader economy. The conversation now centers on whether regulators and lenders can contain any spillover effects and how quickly the system can absorb potential loan losses without precipitating a sharper economic slowdown.
Richard Hunter of Interactive Investor noted that investors face a “storm clouds gathering” scenario, with AI stock valuations, potential government funding disputes, and global geopolitical tensions all weighing on market stability. Derren Nathan of Hargreaves Lansdown added that even as some anticipate rate cuts later in the year, attention is increasingly directed toward the health of the economy and the risks posed by credit losses within the regional banking sector.
