European shares tumble as banks slump, Fed uncertainty weighs

European shares tumbled to a more than one-month low on Friday on uncertainty around US monetary tightening, with financial stocks sinking 4.2% after a warning from a US bank spurred worries about stress in the sector.

The pan-European STOXX 600 index (.STOXX) fell 1.7% on broad-based losses, with HSBC (HSBA.L), Deutsche Bank (DBKGn.DE), Barclays (BARC.L), Unicredit (CRDI.MI) and Commerzbank (CBKG.DE) down between 2.7% and 7.2%.

The European banking index (.SX7P) hit a six-week low after U.S. tech-industry lender SVB Financial Group (SIVB.O) launched a share sale to shore up its balance sheet due to declining deposits from startups struggling for funding, reported Reuters.

“Sentiment towards banking sector is very fragile after SVB’s stock sale that has fueled concerns of capitalisation risk across the sector,” said Fiona Cincotta, senior financial markets analyst at City Index.

“It’s... opening investors’ eyes to this problem which hasn’t been on their radar so far. If it can happen to a US bank, it could potentially happen to a bank in Europe as well.”

All eyes are on US non-farm payroll data due at 1330 GMT following volatility spurred by a sharp rise in US jobless claims and a decline in Wall Street bank shares.

February data is expected to show an increase of 205,000 after a blowout 517,000 in January. Any surprise to the upside could strengthen bets for continued aggressive interest rate hikes.

For the week, the STOXX 600 is on track to lose more than 2.6% marking its worst week in three months, as risk appetite took a hit following hawkish comments from Fed Chair Jerome Powell.

Markets are now pricing in a higher possibility of a 50 basis points increase in Fed rates this month, as well as a likely faster pace of hikes after that.

Next week, the focus is likely to be on the European Central Bank which is expected to hike its key lending rate by 50 bps.

Among other individual movers on Friday, chipmaker ASML Holding NV (ASML.AS) fell 2.3% on uncertainty over the Dutch government’s new restrictions on chip-technology exports to China.