Global markets slide on US shutdown and banking sector fears

Global financial markets experienced a broad sell-off as a prolonged US federal government shutdown and renewed anxieties over the banking sector's stability weighed heavily on investor confidence. The CBOE Volatility Index (VIX), a closely watched measure of market fear, jumped 23% to reach 25.31, its highest point in six months, signaling deep-seated investor concerns.

Banking Sector Triggers a Sell-Off

The immediate catalyst for the downturn was the disclosure of loan fraud at several US financial institutions. Zions Bancorp reported a $50 million loss from irregularities in two commercial loans, causing its shares to plummet 13.1%. Similarly, Western Alliance filed a lawsuit against a borrower for fraud, leading to a 10.8% drop in its stock price. This news triggered a 6.3% fall in the KBW Regional Banking Index and dragged down shares of larger players like JPMorgan Chase.

Safe-Haven Flows and European Divergence

In a flight to safety, investors sought refuge in traditional safe-haven assets. The price of gold climbed to a record high of $4,379.42 per ounce, while the yield on the 10-year US Treasury note fell to 3.96%, its lowest since April. Conversely, European markets finished Thursday higher, buoyed by optimism over potential peace talks between Russia and Ukraine, which overshadowed the negative sentiment from the US.

Asian Contagion and Broader Economic Worries

The negative trend spread to Asian markets on Friday, with major indices in Japan, China, and Hong Kong all posting significant losses. Analysts attributed the global unease to a combination of the ongoing US shutdown, the banking sector's fragility, and reignited US-China trade tensions after President Trump threatened new tariffs. Bank of Japan Governor Kazuo Ueda noted the central bank is closely monitoring these global risks ahead of its upcoming policy decision.