A look at the day ahead in European and global markets from

Stella Qiu

It was already a troubling set-up for stocks, with

valuations stretched, the whiff of an AI bubble, a shut U.S.

government and the ongoing break-up between Washington and

Beijing. Now, add in jitters about U.S. regional banks.

Overnight, Zions sank 13% after disclosing it would

take a $50 million loss in the third quarter on two loans from

its California division. Western Alliance's stock

slumped 11% after it initiated a lawsuit alleging fraud by

Cantor Group V, LLC.

The banks' selloff comes more than two years after Silicon

Valley Bank's 2023 failure, when high interest rates drove paper

losses on its bonds, sparking a fatal deposit run that felled

Signature Bank days later.

Worries of a repeat drove shares in the red and had markets

baying for more U.S. rate cuts. MSCI's broadest index of

Asia-Pacific shares outside Japan fell 0.9% on

Friday and Japan's Nikkei slid 1.1% as its banking index

tumbled.

Wall Street futures fell 0.4% ahead of more earnings from

U.S. regional banks later in the day. European stock futures

lost 0.8%, while FTSE futures dropped 1%.

The flight to safety saw gold hit a record of

$4,378.69 per ounce and was poised to finish the week 8.9%

higher - the biggest weekly rise since September 2008 when the

collapse of Lehman Brothers fuelled the global financial crisis.

How is that not ominous?

Treasuries also found their safe-haven mojo back, rallying

for a third straight week. Two-year Treasury yields hit a fresh

three-year trough of 3.3890% as investors bet the Federal

Reserve will have to cut rates twice by year end, with some

chance of an outsized 50 bps move.

While financial stability risks seem contained for now,

Jamie Dimon has said "When you see one cockroach, there are

probably more, and so everyone should be forewarned."

Investors assume the Fed will ride to the rescue, because of

course it will. But cutting rates when inflation is at 3% and

the full impact of tariffs on prices is only starting to be felt

could be just a taster of what to expect when Trump gets to

appoint his very own Fed chair.

Key developments that could influence markets on Friday:

- Little data released as US government is shut

- Fed official Alberto G. Musalem speaks, as well as Bank of

Japan's Deputy Governor Shinichi Uchida

- US earnings include American Express, State Street and

more regional banks

(Editing by Muralikumar Anantharaman)