Financial markets shook sharply on Monday amid the threat of contagion in the global banking sector from bankruptcies that have emerged in the United States in recent days.
• Also read: Insolvency of the SVB Bank: what risk of contagion?
• Also read: The American banking system is “solid”, assures President Biden
• Also read: Bankruptcy of Silicon Valley Bank in the United States
Wall Street stabilized after a significantly lower opening price and two sessions of sharp declines: at around 14:00 GMT, the Dow Jones index was up 0.25%, the S&P 500 was steady (+0.03%) and the Nasdaq technology index fell 0.17%.
European markets remained sharply lower but recovered after losing more than 3% earlier in the afternoon: Paris and Frankfurt lost 2.35% and 2.50%, respectively. London returned 1.82% and Milan 3.56%, the biggest falls since last summer.
The bond market, considered a safe bet in a crisis, also had a turbulent session as certain government securities, most notably US short-term debt, posted historic declines.
Oil also took a hit, falling more than 4%.
Despite efforts to reassure US authorities to avoid contagion following the bankruptcy of three US banks, investors remain feverish and prices remain volatile.
Americans can have “confidence” in a “sound” banking system, White House President Joe Biden has said, pledging he will do “whatever is necessary” to keep it that way.
Earlier on Sunday, US authorities announced that the bankrupt Silicon Valley Bank (SVB) would be fully guaranteed deposits and the US Federal Reserve (Fed) pledged to lend other banks the funds needed to meet withdrawal requests.
“It’s not a federal bailout, but it does offer guarantees,” says IG analyst Alexandre Baradez.
Nevertheless, trust in American regional banks seems to have been broken after three bankruptcies in the past few days, including that of Silicon Valley Bank. “Only the big banks seem safe,” Lionel Melka, a partner at Swann Capital, told AFP.
California bank First Republic, which fell 30% in two sessions, plunged 67% at Monday’s open and Western Alliance tumbled 73%.
For Axa IM’s Gilles Gibout, the episode “highlights the less direct impact of interest rate hikes on banks.”
On Friday, European bank stocks fell again on Monday, with an even clearer move for banks perceived as less solid: Credit Suisse fell 14.94% to hit a new all-time low, while Germany’s Commerzbank plunged 14.43%, which French BNP Paribas and Société Générale by 5.41% and 6.17% and Italy’s Unicredit by 9.98%.
HSBC, which lost 4.00%, announced on Monday morning it would buy the UK branch of Silicon Valley Bank for a pound, allowing customers “to access their deposits and banking services normally”.
This crisis in the banking sector “changes the game in terms of the Fed’s expectations,” stresses Swissquote Bank’s Ipek Ozkardeskaya.
The sharp hikes in interest rates over the past year to combat inflation have helped weaken banks and slow economic activity.
Given the events, markets are now anticipating a slowdown in the pace of Fed rate hikes at the next meeting on March 21st and 22nd.
In Europe it is “difficult to understand why the ECB should not implement the increase by 50 basis points”, but the doves, advocates of an accommodative monetary policy, now have “more arguments” for the future, believes Carsten Brzeski, economist at ING.
Government interest rates fell on the bond market on Monday. The interest rate on the 10-year US loan was 3.49%, up from 3.70% at Friday’s close, while the two-year rate posted an unprecedented drop of more than 50 points since 1987 to 4.06%.
German 10-year debt was trading at 2.18% versus 2.50% at the close on Friday.
The dollar fell against other currencies, with the euro recovering 0.56% to $1.0703 and the pound 0.53% to $1.2094.
Bitcoin rallied 4.54% to $22,470, erasing losses that followed SVB’s announcement of troubles.