US futures slip as bank stocks fall on hedge fund default concerns

U.S. stock index futures dropped on Monday after Wall Street’s surge in the prior session as major lenders came under pressure on concerns over possible spillover effects of a hedge fund’s default on margin calls.

Nomura and Credit Suisse warned of significant losses after the U.S. hedge fund, named by sources as Archegos Capital, defaulted, hitting shares in some big U.S. media and Chinese tech companies.

The news has sparked fears that other lenders could be in the process of exiting these positions too.

Shares in Bank of America Corp, Citigroup Inc, JPMorgan Chase & Co, Goldman Sachs, Wells Fargo & Co and Morgan Stanley dropped between 0.8% and 3.3% in premarket trading.

Shares in Discovery Inc rose about 5% after tumbling 27% on Friday, while U.S.-listed shares of Tencent Music rose 4% after nearly halving in value last week.

ViacomCBS, Baidu and VIPShop fell between 0.2% and 1.5%.

“This incident reminded markets of the dark side of leverage, likely leading some players to cut their risk exposure near record highs to avoid any serious losses if the selling snowballs,” said Marios Hadjikyriacos, investment analyst at online broker XM in Cyprus.

Wall Street’s main indexes surged over 1% in a late-session rally on Friday as investors looking to rebalance their portfolios at the end of the quarter, piled into economy-linked banks, energy, materials as well as technology names.

The Dow and the S&P 500 are less than 1% from their record highs, while the tech-heavy Nasdaq is still about 7.1% from its February all-time high.

At 06:38 a.m. ET, Dow E-minis were down 124 points, or 0.38%, S&P 500 E-minis were down 14.5 points, or 0.37% and Nasdaq 100 E-minis were down 32.75 points, or 0.25%.

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor