The Paris Bourse remains sharply down on Monday with 40 minutes to go: the CAC40 (-2.5% towards 7,030) looks set to preserve the 7,000 mark if Wall Street maintains its current gains.
US indices are trying to bounce back (up +0.7% on average) despite the -40 to -75% plunge of certain regional banks.

The Euro-Stoxx50 is down -2.9% at 4,100, while Milan is down -3.2% and Frankfurt more than -3%.

With the collapse of Silicon Valley Bank (SVB), investors have rediscovered the fragility of the financial system, against a backdrop of rising interest rates (which devalue the stocks of Treasury Bills that serve as quasi-liquidity collateral) and slowing activity.

The news sent a wave of panic through the world's stock markets last week, due to fears of a possible domino effect that could affect leading banking institutions.
The domino effect is undeniable, since Signature Bank is also said to be on the verge of liquidation, First Republic is showing -78%, Western Alliance -75%, Zions Bancorp -45%, Charles Schwab -401%, Comerica -33%...
The name Bank of AMerica is also being bandied about, but as a "systemic" bank it has nothing to fear: support from the FED and the Treasury guaranteed.

It seems difficult to assess the banking sector's exposure to the case, but many analysts are trying to allay the concerns that have recently surfaced among investors (has SVB lost out big time with start-ups in the crypto universe, with the bankruptcy of Silvergate, the banker in the crypto universe on March 8, sowing doubt?).
The affair is obviously 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 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: over the weekend, the Fed guaranteed that all customers (individuals and companies) of the Californian bank 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: unheard of since the 1987 crash!
The U.S. '10-yr' fell by -20pts to 3.5%, the '1-yr' by 5.01% to 4.35%, the '6-month' by 5.13 to 4.73%: in other words, the markets are betting on the FED's rate hike cycle coming to an immediate halt (0.00% in March vs. 0.50% anticipated last Thursday, and nothing thereafter): the fight against inflation would quite simply be abandoned forthwith!

This is a major upheaval.

'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 make 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 ($19.8 trillion)", adds the broker.

Should the problems of US banks 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, both on the monetary policy front and on the corporate and economic fronts.
Caution on global markets is likely to be reinforced by tomorrow's release of the latest US inflation figures, which should help determine whether price rises are finally easing.

On the monetary policy front, the ECB - which is a long way from achieving 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, already up 0.8% at 1.0730, will soar beyond $1.08 and even $1.10).

Our OATs are down 21pts at 2.80%, German Bunds are down 23pts at 2.26%... but Italian BTPs are only down 15pts at 4.17%.

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 big risky bets on the simple hope that the central banks will do everything exactly right, at the right time, without the markets losing their heads at some point along the way", warned Björn Jesch, investment director at DWS, recently.

With the historic plunge in bond yields, gold soared by a further +£2 (as much as on Friday) and climbed towards $1,905, pulverizing resistance at $1,875.


Copyright (c) 2023 CercleFinance.com. All rights reserved.