The control room of Euronext, the company that manages the Paris Stock Exchange (AFP/Archives/ERIC PIERMONT)
Financial markets are rocking sharply on Monday, plagued by the risks of contagion in the global banking sector after bankruptcies in the United States in recent days.
European markets suffered severe turbulence in the morning, having almost all lost at one point more than 3%. They reduced their losses a little around 11:40 a.m. GMT (12:40 p.m. in Paris): Paris only fell by 2.28%, Frankfurt by 2.45% and London by 1.96%. Milan was still sinking by 3.78%.
After two sessions of sharp decline, Wall Street seems to be heading for a mixed opening on Monday according to futures contracts, which suggest variations between -0.2% and +0.6%. US markets open at 1:30 p.m. GMT.
The debt market also experienced a turbulent session with a very sharp drop in government yields, perceived as safe haven investments in the event of a crisis.
Despite attempts by US authorities to avoid contagion from the bankruptcy of three US banks, investors remain feverish and prices volatile.
“We had forgotten how much the banking system relies on trust,” Lionel Melka, a partner at Swann Capital, told AFP.
Confidence in US regional banks appears shattered after three bankruptcies in recent days, including that of Silicon Valley Bank. “Only the big banks seem safe,” he continues.
The Californian bank First Republic, which dropped 30% in two sessions, was heading for a fall of 60% at the opening on Monday, the Western Alliance of almost 50%.
Among the measures announced on Sunday, the American authorities will in particular guarantee the withdrawal of all deposits from the bankrupt bank Silicon Valley Bank (SVB).
The US Federal Reserve (Fed) has also pledged to lend the necessary funds to other banks to honor withdrawal requests.
The headquarters of Silicon Valley Bank (SVB) in Santa Clara, California on March 10, 2023 (GETTY IMAGES NORTH AMERICA/AFP/JUSTIN SULLIVAN)
“It’s not a federal bailout but it provides guarantees,” says IG analyst Alexandre Baradez.
For Gilles Gibout, of Axa IM, the episode “highlights the less direct impact of rising interest rates on banks, in particular when variable rate debt comes into conflict with fixed rate assets. “Very low for years.
Bright red sitting news for banks
On Friday, European banks fell again on Monday, with an even more marked movement for banks perceived as less solid: Credit Suisse fell by 9.98% and hit a new historic low point while the German Commerzbank plunged by 10.56%, the French Société Générale by 5.88% and the Italian Unicredit by 7.75%.
HSBC, which lost 3.59%, announced Monday morning to buy the British branch of Silicon Valley Bank for one pound, which allows customers to “access their deposits and their banking services normally”.
New deal for the Fed?
This crisis in the banking sector “changes the game on the expectations of the Fed”, underlines Ipek Ozkardeskaya, of Swissquote Bank.
The sharp rises in interest rates over the past year in order to fight inflation have contributed to weakening the banks and slowing down economic activity.
The latest events could convince US central bankers to slow down at their next meeting on March 21-22.
Sovereign rates fell on the bond market on Monday. The interest rate for the US 10-year loan was 3.54%, down from 3.70% on Friday at the close, while the German rate at the same maturity was trading at 2.26% from 2.50% Friday at closing.
The dollar fell against other currencies: the euro recovered 0.18% to 1.0662 dollars and the pound 0.27% to 1.2062 dollars around 11:35 GMT.
Bitcoin rebounded 2.85% to $22,100, erasing the losses that followed the announcement of SVB’s difficulties.
Oil prices fell: a barrel of Brent was worth 81.46 dollars (-1.59%) and the American WTI 75.37 dollars (-1.71%) around 11:30 GMT.
© 2023 AFP
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