European stocks drop before ECB; PacWest Bancorp slumps

BLOOMBERG

European stocks dropped as investors turned their focus towards a rates decision by the European Central Bank (ECB) after a quarter-point hike by the Federal Reserve. US regional lenders slumped on renewed worries about financial stability.
Most industry groups were in the red in Europe, with energy a bright spot after Shell Plc posted strong quarterly profit and maintained the pace of share buybacks. Contracts on the S&P 500 were steady, while PacWest Bancorp led a plunge in US regional lenders in premarket trading after saying it’s in talks with several potential investors.
Markets are kicking off the month with rate decisions from two major central banks amid lingering concerns about financial stability and price pressures. US stocks erased a rally after Fed Chair Jerome Powell played down prospects of rate cuts. The ECB is expected to slow the pace of rate increases after its preferred measure of inflation dipped for the first time in 10 months.
Oil rose, recovering rapidly after a sudden dip early in the session on Thursday as Chinese traders returned after a break. “The ECB meeting is expected to be a more complex one compared to that of the Federal Reserve,” said Erick Muller, director of product and investment strategy at Muzinich & Co. “If no one doubts the ECB will raise rates again at this week meeting, the magnitude of the rise and the tone of the communication are difficult to forecast.”
The Bloomberg dollar index was steady, while Treasuries retreated, unwinding some of their gains after the Fed commentary. PacWest slumped as much as 48% in premarket trading amid renewed fears about the health of the US banking system. The shares had plummeted in extended trading after Bloomberg News reported it was considering strategic options including a sale. Western Alliance Bancorp also tumbled, heading for a fifth straight decline.
“The tightening in credit conditions will put some significant downward pressure on the economy,” Michelle Girard, head of US for NatWest Markets, said on Bloomberg Television. “You will see the Fed in a position to move policy to a less restrictive stance sooner than what the Fed chairman was suggesting.”
Elsewhere, an Asia-wide gauge of equities rose, helped by gains in Hong Kong shares, while stocks in mainland China resumed trading after a three-day break.The Stoxx Europe 600 fell 0.5% in London  and S&P 500 futures were little changed.
While Nasdaq 100 futures rose 0.3%, futures on the Dow Jones Industrial Average were little changed and the MSCI Asia Pacific Index rose 0.5%. The MSCI Emerging Markets Index rose 0.7%.
The Bloomberg Dollar Spot Index was little changed and the euro fell 0.2% to $1.1043.
While the Japanese yen was little changed at 134.63 per dollar, the offshore yuan was little changed at 6.9254 per dollar and the British pound was little changed at $1.2562.