Wall Street closed flat and the FTSE 100 slipped into the red today as fears of potential losses from a major US hedge fund defaulting on margin calls held back stocks.
While the Dow Jones gained 0.3 per cent, the S&P 500 was 0.09 per cent lower and the tech-heavy Nasdaq closed down 0.6 per cent.
It came after a US hedge fund, widely named as Archegos Capital, defaulted on margin calls, sparking potentially billions of dollars in losses for Credit Suisse and Nomura.
Investors initially sent London’s blue-chip index 0.2 per cent higher before falling back to close down 0.07 per cent at 6,736 points.
Mining stocks were among the biggest fallers as commodity prices weaken, with Fresnillo and Antofagasta both weighing on the blue-chip market.
Housing stocks are also under pressure after mortgage approvals dropped more than expected last month. Rightmove and Persimmon are down 2.2 and 1.8 per cent respectively.
The more domestically focused FTSE 250 closed down 2.24 per cent at 21,435.
Investors eye US hedge fund fallout
Traders on Wall Street were on edge today following revelations this morning that a US-based hedge fund had defaulted on its margin commitments last week.
Last week a handful of Chinese tech stocks, including Alibaba and Tencent, and ViacomCBS faced a heavy selloff. It was initially thought the stocks came under pressure because of delisting fears but it was since emerged that it was mainly because Archegos Capital Management was forced to liquidate its position.
“Following the failure of the fund to meet these margin commitments, Credit Suisse and a number of other banks are in the process of exiting these positions,” Credit Suisse said.
Alongside Japanese investment bank Nomura, Credit Suisse warned of “significant losses” stemming from Archegos.
Investors will be closely monitoring the situation to assess if there will be any ripple effects over the next few days. “For the moment the moves appear to be confined to a handful of specific stocks,” said Michael Hewson at CMC Markets.
European banks are under pressure with Credit Suisse down nearly 14 per cent following Nomura which shed 16 per cent in Tokyo overnight.
“There was little surprise that US markets slumped at Monday’s opening bell,” said Danni Hewson, financial analyst at AJ Bell.
“Rumours continue to swirl about exactly which companies have been caught up in the Archegos saga and how badly. So far, it’s the investment banking sector bearing the brunt with Morgan Stanley and Goldman Sachs both trading down.”
Hewson added that European markets had largely shrugged off the impact of the Archegos saga, with bank stocks hit the worst.
“While all of today’s headlines have been about margin calls, and the fallout from the Friday block trades on Wall Street, European markets have taken most of this in their stride, with banks feeling the effects of the fallout the most,” he said.
Oil stocks slip as Suez ship refloated
BP and Shell both closed lower today as oil prices slumped on news the Ever Given has been “partially refloated”.
Shipping rates for oil tankers have nearly doubled since the ship became stranded last week.
Some ships decided to reroute their cargoes around the Cape of Good Hope, adding another two weeks to journeys and extra fuel costs.
After numerous failed attempts it has now been reported that the ship has been dislodged from the bank of the canal. Reuters reported the Ever Given had been straightened, restarted its engine and was undergoing checks before being moved.
But while oil prices slumped early in the day, they soon recovered after Reuters reported that Russia would support stable oil output from Opec+ ahead of a meeting later this week.
Brent oil rose 41 cents to $64.98 a barrel, while US crude was up 59 cents to settle at $61.56 a barrel.
“The likely reopening of the Suez Canal shipping route should slowly allow the accumulated blockage to ease, while a meeting of OPEC later in the week will be watched for any decisions on supply,” Hewson said. “The oil price has of late been drifting on concerns that hopes for the resumption of demand has been overstated, although it remains strongly ahead by 22 per cent so far this year.”