The Paris Bourse remains sharply down on Monday, 1 hour after the reopening of Wall Street (US indices are trying to preserve their balance despite the -40 to -75% plunge of certain regional banks), and the CAC40 (-2.9%) is fighting to preserve the 7,000Pts mark.000Pts (down to 6,980 by 2.45pm).

The Euro-Stoxx50 fell -3.2% below 4,100, while Milan plunged -3.5% and Frankfurt more than -3.1%.

With the collapse of Silicon Valley Bank (SVB), investors rediscovered that the financial system remained fragile against a backdrop of rising interest rates and slowing activity.

The news sent a wave of panic through the world's stock markets last week, with fears of a domino effect that could affect leading banking institutions.
The domino effect is undeniable, with Signature Bank also reportedly on the verge of liquidation, First Republic -78%, Western Alliance -75%, Zions Bancorp -45%, Charles Schwab -401%, Comerica -33%...).

It seems difficult to assess the banking sector's exposure to the case, but many analysts are trying to assuage the concerns recently expressed by investors.
The case is clearly a "black swan" that has mobilized the highest political and monetary authorities: the White House, the Treasury, the FDIC, the FED, the SEC, etc. Joe Biden has already spoken out on the subject.
Joe Biden has already taken the floor to underline the "solidity" of the US banking sector, and to assure us that this is not a "bail out" (a rescue using public money), but rather the implementation of temporary (and in fact unlimited) guarantee mechanisms for the assets of bank customers (who are offered a $25 billion credit line in case of need).
Another reason for relief was the Fed's guarantee over the weekend that all the Californian bank's retail and corporate customers would be able to recover their funds in full.

This may have put out the fire and prevented a bank run on the part of credit institutions, but it also had another spectacular consequence: a 100-pt drop in 3 sessions in 2-year yields, from 5.08% to 3.99% around 3pm.

A drop of -110Pts in just a few hours: unprecedented since the 1987 crash!
The U.S. '10-yr' is down -25pts to 3.45%, the '1-yr' from 5.01% to 4.35%, the '6-month' from 5.13 to 4.73%: in other words, the markets are betting on an immediate end to the rate hike cycle (0.00% in March vs. 0.50% anticipated last Thursday): the fight against inflation would simply be abandoned forthwith!
This is a major upset.

While it's true that the announcement of a bank default immediately revives memories of the 2008 financial crisis, we think it's too early and still unjustified to draw such comparisons at the moment", write the teams at US broker Edward Jones.

We believe that a credit risk should not be ruled out as economic conditions weaken, but SVB remains a very small institution compared to the US banking system ($19,800 billion)", adds the broker.

If the problems facing US banks were to worsen, the sharp decline suffered by the major stock market indices last week could well be prolonged.
The week promises to be a busy one on the monetary policy front, as well as on the corporate and economic fronts.
Caution on world markets is likely to be reinforced by tomorrow's publication of the latest US inflation figures, which should reveal whether price rises are finally slowing down.

In terms of monetary policy, the ECB - which is far from having reached its inflation target - was due to raise its key rates by a further 50 basis points on Thursday, and is likely to stay on course for further rate hikes.... but can it do so and not align itself with the FED (otherwise the Euro, which is already up 0.8% at 1.0730, will soar beyond $1.08 and even $1.10).

Our OATs are erasing -25pts to 2.75%, German Bunds -28pts to 2.216%... but Italian BTPs only -17pts to 4.15%.

With inflation set to remain fairly high, and further interest rate hikes to come, the current configuration creates a difficult environment for risk assets, as shown by the recent chaotic performance of stock market indices.

It seems to us too early to place large risky bets on the simple hope that central banks will do everything exactly right, at the right time, without the markets losing their heads at some point along the way", warned Bjorn Jesch, Chief Investment Officer at DWS, recently.

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