European shares are down

On Friday, European stock markets experienced a decline as investors reacted to a week of central bank rate hikes and the latest news from the banking sector. The pan-European Stoxx 600 index was down by 1.85% at midday in London, with all sectors posting declines or remaining flat. Financial services stocks fell by 2.2%, mining stocks were down by 2.6%, and oil and gas stocks dropped by 4%.

Banks suffered the biggest losses, with the sector plunging by 5% despite reassurances from policymakers that the system is stable after recent volatility. This week, Citigroup downgraded the European banking sector to “neutral” from “overweight,” citing the effects of continued monetary policy tightening. Deutsche Bank dropped by 14%, extending a 3.2% fall on Thursday after its credit default swaps, a form of insurance for bondholders, pushed higher. Other banks that fell sharply included UBS, Societe Generale, Barclays, and BNP Paribas.

The Bank of England hiked its base rate by 25 basis points to 4.25% on Thursday in a move that was priced in by markets after U.K. inflation recorded a surprise jump. The Swiss central bank also raised its own benchmark interest rate by 50 basis points. Both decisions come in the shadow of the U.S. Federal Reserve hiking by 25 basis points.

While U.S. stocks closed a choppy session higher after the Fed signaled that there is only one more quarter percentage point hike to come this year, European stocks were lower through the session. Furthermore, U.S. stock futures dropped on the news of Deutsche Bank’s losses.

Global markets have also been digesting the latest comments from U.S. Treasury Secretary Janet Yellen, who said on Thursday that the emergency actions used to back up Silicon Valley Bank and Signature Bank customers could be deployed again amid concerns over U.S. regional banks.

On Friday, Asia-Pacific markets were mixed. However, investors will continue to monitor the impact of rate hikes and the latest banking sector news on the global markets.

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