European stocks sharply lower; banking sector hit hard

European stock markets traded sharply lower Friday as nervousness ahead of the widely-watched U.S. jobs report and weakness in the banking sector overshadowed better-than-expected U.K. growth data.

At 08:40 GMT, the DAX index in Germany traded 1.7% lower, the CAC 40 in France dipped 1.9% and the FTSE 100 in the U.K. fell 1.6%.

Sentiment has been hit hard by Jerome Powell’s semi-annual testimony to Congress this week, with the chairman of the U.S. Federal Reserve saying the central bank was prepared to quicken the pace of rate hikes to battle persistent inflation.

Investors are wary ahead of the U.S. payrolls release later in the session, with Powell mentioning this data point as one of the key indicators framing the Fed’s thinking.

Nonfarm payrolls are expected to have increased by 205,000 jobs last month, a slowdown from the blockbuster 517,000 added in January, but another upside surprise is a possibility given Powell’s hawkish tone.

The market is now increasingly betting that March’s rate decision by the Fed will be a half-percentage point hike, an acceleration from the 25 basis point increase in early February.

The European banking sector slumped Friday, following the lead on Wall Street overnight after SVB Financial’s (NASDAQ:SIVB) announcement of a $2.25 billion equity raise after revealing a $1.8B net loss and crypto bank Silvergate Capital’s (NYSE:SI) decision to wind down operations.

Losses were widespread, with HSBC (LON:HSBA) stock falling 5.1%, BNP Paribas SA (EPA:BNPP) stock down 4.5% and Deutsche Bank (ETR:DBKGn) slipping 7.2%.

Swedbank (ST:SWEDa) stock fell 5.4% after the Nordic lender said it will book a provision of around $3.7M to do with a U.S. investigation over the bank’s “historical shortcomings”.