### European Market Commentary: Risk-Off Sentiment Dominates Amid Credit Wobbles

European equities extended losses in today’s trading session, mirroring a broader risk-off mood triggered by overnight developments in US regional banks and deepening credit concerns. The Euro Stoxx 50 fell 1.48%, dragged down by financials, while Germany’s DAX suffered the steepest decline at 2.16%, reflecting sensitivity to global banking jitters. France’s CAC 40 bucked the trend somewhat with a milder 0.78% drop, buoyed by defensive sectors, and the UK’s FTSE 100 shed 1.51%, weighed by exposure to US-linked assets. Sector-wise, banks plunged over 2.8% across the region, amplifying spillovers from US peers amid warnings on leveraged loan vulnerabilities following high-profile corporate collapses. Utilities and consumer staples provided modest offsets, underscoring a flight to quality.

Key drivers included persistent credit market unease, with “cockroach” risks—unexpected defaults bubbling up—eroding confidence in high-yield debt. The ECB’s steady policy stance offered little relief, as markets priced in no imminent rate cuts despite softening Eurozone inflation data from the prior week. Political headwinds added friction, notably Spain’s regulatory block on BBVA’s hostile bid for Sabadell, which heightened merger arbitrage volatility and underscored fragmented banking integration in the bloc. Eurozone PMI figures, due later, loom as a potential stabilizer, but investor positioning remains defensive, with hedge funds trimming cyclicals in favor of cash equivalents.

Currency dynamics reflected dollar weakness amid US bank routs. The EUR/USD edged up 0.07%, supported by relative Eurozone resilience, while GBP/USD dipped 0.04% on sterling’s safe-haven underperformance. The USD/CHF declined 0.39%, signaling CHF appreciation as a funding currency, with EUR/GBP gaining 0.10% on divergent monetary outlooks. Broader FX moves, including a 0.30% drop in USD/JPY, pointed to yen repatriation flows.

Overnight, US indices closed lower—the S&P 500 down 0.63% and Dow 0.65%—as earnings fears exacerbated bank losses, with Asian markets echoing the slide on crypto volatility and regional lender worries. Overall sentiment is cautious, with positioning skewed toward de-risking ahead of US bank results; European traders eye potential contagion but anticipate ECB rhetoric to cap downside if credit spreads stabilize.