Federal Reserve chair Jerome Powell. FTSE investors were mulling whether the collapse of Silicon Valley Bank would force the Federal Reserve to change course on interest rates. Photo: Kevin Lamarque/Reuters

The FTSE 100 edged lower on Tuesday while European stocks moved into the green as investors considered whether the collapse of Silicon Valley Bank (SIVB), Signature Bank (SBNY), and Silvergate (SI) would force the Federal Reserve to change course on interest rates.

The FTSE 100 (^FTSE) dropped 0.05% to 7,545 points at the open, while the CAC 40 (^FCHI) in Paris rose 0.18% to 7,023 points. In Germany, the DAX (^GDAXI) climbed 0.25% to 14,996.

Credit Suisse (CS) led the declines across European financials after the Swiss lender said it found "material weakness" in its internal financial reporting controls, adding to its woes.

Victoria Scholar, head of investment at Interactive Investor, said: “In a frenetic period for markets, European indices have started the session oscillating between gains and losses with the FTSE 100 trading lower while the DAX is currently in the green.

“Land Securities (LAND.L), British Land (BLND.L) and Rightmove (RMV.L) are among the outperformers on the UK index amid hopes of a dovish tilt from the Bank of England. Most European banks continue to face selling pressure with HSBC (HSBA.L) and Standard Chartered (STAN.L) near the bottom of the FTSE 100.”

In London, banks continued to lead the losses across the blue-chip index, with Lloyds (LLOY.L) falling 0.82%, HSBC losing 1.79%, Barclays (BARC.L) declining 0.28% and NatWest (NWG.L) slipping 0.62%.

Read more: How Silicon Valley Bank skirted Washington's toughest banking rules

Across the pond, US stocks ended the session mixed on Monday as regulators moved to limit the market impact of Silicon Valley Bank’s collapse.

The Dow Jones (^DJI) lost 0.28% to 31,819 points, the S&P 500 (^GSPC) fell 0.15% to 3,855 points. However, the tech-heavy NASDAQ (^IXIC) gained 0.45% to 11,188.

Danni Hewson, AJ Bell head of financial analysis, said the first rush of relief has been replaced by niggling concerns that the era of high rates might be more difficult for some banks to stomach than had been previously thought.



“Can the US economy remain resilient if the Fed goes further and faster with those interest rate hikes than had been priced in at the start of the year? Markets seem to be betting that question won’t need to be answered and that central bankers will be swayed by the current predicament and soften their approach to taming inflation.”

Read more: UK pay rises but fails to keep up with inflation

Scholar said traders are now pricing in a 50% chance of no change to interest rates in March, a significant climb down from expectations for a hike of between 25-50 basis points just last week.

Meanwhile, Brent crude futures dropped below $80 a barrel, to a level not seen since early February.

Gold prices, considered to be a hedge against economic uncertainty, were holding above $1900 an ounce, after jumping 2% on Monday.

In Asia, Tokyo’s Nikkei 225 (^N225) lost 2.19% to 27,222 points, while the Hang Seng (^HSI) in Hong Kong dropped 2.46% to 19,210. The Shanghai Composite (000001.SS) also lost ground, falling 0.72% to 3,245 points.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: “The expectation that the hiking cycle won’t now go quite so high in the US, did help the broader S&P index, which closed only marginally lower, but losses became entrenched during trading in Asia, with the fear factor spreading.”

Watch: Former Wall Street banker reacts to banking collapse

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