(CercleFinance.com) – The Paris Stock Exchange remains in sharp decline this Monday 40 minutes from the close: the CAC40 (-2.5% to 7,030) seems able to preserve the 7,000 if Wall Street preserves its current gains.
The US indices are trying to resurface (up +0.7% on average) despite the plunge of -40 to -75% by certain regional banks).
The Euro-Stoxx50 unscrewed by -2.9% in contact with 4,100 while Milan plunged by -3.2% and Frankfurt by more than -3%.
With the bankruptcy of the Silicon Valley Bank (SVB), investors are rediscovering that the financial system remained fragile in a context of rising interest rates (which devalues the stocks of Treasury bonds which serve as collateral as quasi-cash ) and a slowdown in activity.
The news caused a wave of panic last week on global stock markets due to fears of a possible domino effect that could affect leading banking institutions.
An undeniable domino effect since Signature Bank would also be on the verge of liquidation, First Republic shows -78%, Western Alliance -75%, Zions Bancorp -45%, Charles Schwab -401%, Comerica -33%…).
The name of Bank of America is also circulating, but as a ‘systemic’ bank it has nothing to fear: support from the FED and the Treasury guaranteed.
It seems difficult to assess the exposure of the banking sector to the file, but many analysts are trying to allay the concerns that have recently appeared among investors (would SVB have lost big with the startups of the ‘crypto’ universe, the bankruptcy of Silvergate, the banker of the ‘crypto’ universe on March 8, sows doubt?).
The affair is obviously a ‘black swan’ which has mobilized the highest political and monetary authorities: the White House, the Treasury, the FDIC, the FED, the SEC, etc.
Joe Biden has already taken the floor to underline the ‘solidity’ of the US banking sector and to assure that it is not a ‘bail out’ (rescue by public money) and that it was the implementation of temporary guarantee mechanisms (in fact unlimited) for the assets of bank customers (which are offered a $25 billion line of credit if necessary).
Another reason for relief, the Fed guaranteed this weekend that all customers (individuals and businesses) of the Californian bank could fully recover their funds.
This can put out the fire and avoid a ‘bank run’ on the credit institution side, but it has another spectacular consequence: an easing of -100Pts in 3 sessions of ‘2-year’ rates, down from 5.08 to 3, 99% around 3 p.m.
A fall of -110 Pts in a few hours: unheard of since the crash of 1987!
The ’10 years’ US relaxes from -20Pts to 3.5%, the ‘1 year’ from 5.01% to 4.35%, the ‘6 months’ from 5.13 to 4.73%: in other words , the markets are betting on the immediate end of the rate hike cycle by the FED (0.00% in March against 0.50% expected last Thursday, nothing thereafter): the fight against inflation would simply be abandoned during the session holding!
It is a major upheaval.
‘While news of a bank failure immediately brings back memories of the 2008 financial crisis, we believe it is too early and still unwarranted to draw such comparisons at this time’, write the teams of the American broker Edward Jones.
‘We believe that we should not rule out a credit risk with the weakening of economic conditions, but SVB remains a very small institution compared to the American banking system (19.800 billion dollars)’, adds the broker.
If the problems of American banks were to worsen, the sharp decline suffered last week by the major stock market indices could well be prolonged.
The week promises to be lively, both on the monetary policy front and on that of companies and the economy.
Caution on the world markets should be reinforced by the expectation of the publication, tomorrow, of the latest inflation figures in the United States, which should make it possible to determine whether the rise in prices is finally receding.
In terms of monetary policies, the ECB – which is far from having achieved its inflation target – was to raise its key rates again by 50 basis points on Thursday and stay the course for future rate hikes… but can it act in this way and not align itself with the FED (otherwise the Euro which is already gaining 0.8% at 1.0730, will soar beyond 1.08 and even 1.10 $).
Our OATs wiped out -21pts at 2.80%, German Bunds -23pts at 2.26%… but Italian BTPs only -15pts at 4.17%.
With inflation expected to remain fairly buoyant and further interest rate hikes to be expected, the current setup creates a challenging environment for risky assets, as the recent chaotic performance of equity indices shows.
‘It seems too early to us to place big risky bets on the mere hope that central banks will do everything exactly right, at the right time, without the markets losing their minds at some point along the way. ‘, recently warned Björn Jesch, director of investments at DWS.
With the historic plunge in bond yields, gold soars an additional +2£ (as much as Friday) and climbs towards $1.905, shattering the resistance of $1.875.
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