Global Markets Tumble as U.S. Federal Government Shutdown Persist

(MENAFN) Global financial markets suffered steep losses as the US federal government shutdown stretched into its 17th day, compounded by escalating worries over fraud-related loan losses at prominent national banks.

Zions Bancorp and Western Alliance, two major national banks, revealed fraud in parts of their loan portfolios, stoking fears about the broader banking sector’s stability. Zions Bancorp disclosed irregularities in two commercial loans and reported a $50 million loss to the US Securities and Exchange Commission (SEC), resulting in a sharp 13.1% drop in its stock on Thursday. Western Alliance’s shares tumbled 10.8% after it filed a fraud lawsuit against a borrower, according to its SEC filing.

The fallout extended to wider banking shares, with the KBW Regional Banking Index plummeting 6.3%. Heavyweights JPMorgan Chase and Jefferies Financial Group fell 2.3% and 10.6%, respectively. This sell-off deeply undermined investor confidence and pressured global markets.

Investor anxiety surged as the CBOE Volatility Index (VIX), often dubbed the fear gauge, jumped 23% to 25.31, marking its highest reading in six months. Analysts attributed this spike not only to banking sector concerns but also to intensifying US–China trade tensions. President Donald Trump’s recent threat of new tariffs followed Beijing’s restrictions on rare earth exports, further rattling markets. The ongoing government shutdown added to these mounting risks.

Safe-haven assets rallied sharply. Gold prices soared to a record $4,379.42 per ounce before settling at $4,366, up 0.95% on Friday. Meanwhile, the US 10-year Treasury yield dropped to 3.96%, its lowest since April 7, amid strong demand. The US Dollar Index extended its four-day decline, slipping 0.1% to 98.2.

On Wall Street, the S&P 500 declined 0.63%, the Nasdaq fell 0.47%, and the Dow Jones Industrial Average slipped 0.65% on Thursday, with futures pointing to further losses on Friday.

In contrast, European markets rallied after President Trump announced that delegations from Russia and Ukraine would meet next week to discuss ending the war. Trump also revealed plans for talks with Russian President Vladimir Putin in Budapest. A US delegation, led by Secretary of State Marco Rubio, is scheduled to engage with Russian counterparts.

Market optimism over potential peace negotiations buoyed European equities, while ongoing financial support from the EU for Ukraine remained a critical factor driving regional spending.

In France, Prime Minister Sebastien Lecornu’s government survived two no-confidence motions on Thursday, both failing to reach the 289 votes required to oust the administration.

Corporate news saw Swiss giant Nestle report a 3.3% increase in annual sales despite a downturn in China. The company announced plans to cut 16,000 jobs over the next two years to reduce costs—12,000 white-collar roles and 4,000 manufacturing and supply chain positions.

Following these developments, France’s CAC 40 climbed 3.42%, Italy’s FTSE MIB 30 rose 1.12%, Britain’s FTSE 100 inched up 0.12%, and Germany’s DAX 40 gained 0.38%. However, European futures opened lower on Friday.

Across Asia, markets turned negative due to heightened US-China trade tensions and a sell-off in American futures, particularly hitting the banking and financial sectors.

Bank of Japan Governor Kazuo Ueda commented Friday that the central bank would evaluate global and domestic data—including insights from his recent Washington visit—before setting monetary policy in October. He emphasized that “the BoJ will raise rates if the probability of its growth and price estimates increases,” noting that while the US economy has shown resilience, the “impact of tariffs would likely become more visible in the coming months.”

Asian indexes reflected this cautious mood, with Japan’s Nikkei 225 falling 1.4%, China’s Shanghai Composite declining 1.1%, Hong Kong’s Hang Seng dropping 1.8%, and South Korea’s Kospi Index trading flat near the close.

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