Stock markets tumbled on Wednesday, as investor concerns about the health of the banking industry resurfaced and spread around the world, crippling Tuesday’s rally as panic erupted. . seems to pause.
On Wall Street, the S&P 500 fell 1.6% at the open, reversing all of the previous day’s gains. European markets were also hit hard, with shares of many of the region’s biggest banks plummeting on concerns about the fallout from the virus. The fall of Silicon Valley Bank and Signature Bank, has been seized by authorities after suffering brutal races for deposits.
The catalyst for the turmoil of the day seems to be Credit Suisse, Swiss banks are prone to mistakes has struggled for years to turn its fortunes around, with clients constantly shifting their assets to rival banks. It recorded the most notable drop, with its shares losing about 30%, setting another record low. On Wednesday, the bank’s largest shareholder, Saudi National Bank, to exclude, to expel provide more money to Credit Suisse as it struggles with its latest turnaround plan.
Bank bond prices fell sharply and the cost of securing bank loans against the possibility of default skyrocketed. S&P Global Ratings said on Tuesday that European banks have little exposure to Silicon Valley Bank or Signature Bank, nor do they consider any European banks to be at the same risk. “We note, however, that the SVB failure has shaken confidence,” said analysts at the rating agency.
Shares of mid-tier U.S. regional banks that took a hit after the collapse of the Silicon Valley Bank fell again. First Republic Bank is down 24%, PacWest is down 14%, Western Alliance is down 7% and Zions Bank is down more than 5%.
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The decline in the stock and bond markets this year has been severe and it is still difficult to predict what will happen in the future.
Just before the markets opened, S&P Global Ratings slashed the First Republic’s credit rating down a few notches, into so-called junk territory. “We believe the risk of deposits being withdrawn is increasing,” the rating agency said, noting that the bank’s deposit base is more concentrated than many other banks. , with a large number of commercial customers holding balances above the government-insured $250,000 limit.
The largest banks were also affected somewhat, with shares of JPMorgan Chase and Bank of America both sliding more than 3%.
Credit Suisse’s shares plunged, causing the company’s trading activities to temporarily stall. Shares of two French banks, Société Générale and BNP Paribas, fell more than 10%, while Deutsche Bank in Germany and Barclays in the UK fell 8%. The broad-based Stoxx 600 index fell 2.7% as banks pulled down.
Anxiety is also evident in the bond market, with government bond yields falling on expectations that the Federal Reserve may become more cautious about raising interest rates. Persistent inflation would typically require higher interest rates, but turmoil in the banking system may require more caution. Higher interest rates increase costs for companies and are at the root of the pain that banks have felt over the past week.
The Fed is expected to meet next week to set interest rates. The European Central Bankalso raised interest rates to combat inflation, meeting on Thursday.
New data on wholesale prices in the United States released on Wednesday showed producer price inflation in February was not as rapid as expected, while new data on retail sales showed a decline in the previous month. large in line with expectations.
“The Fed would be crazy if they think they can tighten,” said Andrew Brenner, head of international fixed income at National Alliance Securities. “They will break the banking system if they keep thinking like that.”
Yields on two-year Treasuries, which are particularly sensitive to Fed policy, fell more than a third of a percentage point, a big move for that asset, to about 3.85%. Futures markets still expect that Fed policymakers will raise rates by a quarter point at their next meeting, but now they believe the central bank will start cutting rates by second half of the year, setting interest rates at a lower end of the year. year compared to now.
In a sign of the precarious trading conditions faced by traders, a measure of volatility in the bond market rose to its highest level since 2009.
Michelle Bowman, governor of the Federal Reserve, said at a conference in Hawaii on Tuesday: “The U.S. banking system remains resilient and on a solid footing, with strong capital and liquidity in the pipeline. the whole system. She added that the Fed’s board of governors “continues to carefully monitor developments in financial markets and across the financial system.”
In another sign of widespread global concern about the banking system, Vietnam’s central bank cut interest rates overnight in a bid to support the economy.
And in debt markets, where banks and other investors make loans to companies around the world, investors’ fears have been reflected in bond prices and loan slippage. steep on Wednesday. The moves have raised concerns about potential knock-on effects due to tensions in the banking sector and among a number of tech startups, leading some to default.
“Systemic risk isn’t our base case, but fragility is back,” analysts at Bank of America note.
