Silicon Valley Bank sale returned optimism to financial markets, but the situation remains tense

March 28, 2023

In the run-up to the European session yesterday, there was news about the sale of Silicon Valley Bank to another bank, First Citizens Bancshares, one of the most prominent regional banks in the United States, which could become one of the top 20 banks in the United States. The Federal Deposit Insurance Corporation (FDIC) has confirmed that all of SVB’s deposits and branches will go under the new management. Shares of Citizens Bancshares jumped by 53% yesterday. The deal helped calm investor fears about the banking crisis. There are also hopes for additional support for bank financing as the US authorities are discussing expanding emergency lending facilities. At the close of the stock market yesterday, the Dow Jones Index (US30) gained 0.60%, and the S&P 500 Index (US500) added 0.16%. The Technology Index NASDAQ (US100) decreased by 0.47% on Monday.

Most economists predict that the United States is likely to enter a recession this year and face high inflation in 2024. More than two-thirds of respondents to the National Association for Business Economics (NABE) indicated that inflation would remain above 4% later this year.

Minneapolis Fed President Neel Kashkari said Sunday that central bank officials are watching the situation very closely to assess whether bank stress has led to a credit crunch that has threatened to tilt the economy into recession.

Equity markets in Europe were mostly up yesterday. Germany’s DAX (DE30) increased by 1.14%, France’s CAC 40 (FR40) added 0.90%, Spain’s IBEX 35 (ES35) raised by 1.44%, and Britain’s FTSE 100 (UK100) closed down by 0.90% on Monday.

Bank of England Governor Andrew Bailey said yesterday that inflation remains the main driver of monetary policy decisions. Bailey also made it clear that the bank would be prepared to provide tighter monetary policy if signs of persistent inflationary pressures became more evident.

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In Germany, 24-hour strikes called by the Verdi union and the railway and transport union EVG have hit Europe’s largest economy. Airports, including Germany’s two largest in Munich and Frankfurt, suspended flights, while railway operator Deutsche Bahn canceled rail services. The Airports Association estimated that 380,000 airline passengers were affected. In Frankfurt alone, nearly 1,200 flights were canceled for 160,000 passengers. Employees are pushing for wage increases to reduce the impact of inflation, which reached 9.3% in February. Germany, which was heavily dependent on gas from Russia before the war in Ukraine, has been hit particularly hard by the price increase as it struggles to find new sources of energy.

Russian Deputy Prime Minister Alexander Novak said Moscow is close to reaching its goal of cutting oil production by 500,000 barrels per day (BPD) to about 9.5 million. Russia is trying to keep oil prices from falling, as oil and gas have become almost the only source of income for Russia since sanctions were imposed for its invasion of Ukraine. Russian President Vladimir Putin’s plans to deploy tactical nuclear weapons in Belarus further increased tensions in Europe, which contributed to the rise in oil prices yesterday.

Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) gained 0.33% yesterday, China’s FTSE China A50 (CHA50) decreased by 0.48%, Hong Kong’s Hang Seng (HK50) ended the day down by 1.75%, India’s NIFTY 50 (IND50) gained 0.24%, and Australia’s S&P/ASX 200 (AU200) was positive by 0.10% by Monday’s end.

China’s industrial profits fell by 22.9% in the first two months of this year. Factories and large industrial companies struggled to recover from COVID-related disruptions. Overall, investor sentiment in Asia remains jittery due to concerns about banking stress and its impact on global growth.

S&P 500 (F) (US500) 3,977.53 +6.54 (+0.16%)

Dow Jones (US30)32,432.08 +194.55 (+0.60%)

DAX (DE40) 15,127.68 +170.45 (+1.14%)

FTSE 100 (UK100) 7,471.77 +66.32 (+0.90%)

USD Index 102.83 -0.28 (-0.27%)

Important events for today:

– Australia Retail Sales (m/m) at 03:30 (GMT+2);
– Japan BoJ Governor Kuroda Speaks at 07:00 (GMT+2);
– UK BoE Gov Bailey’s Speech at 11:45 (GMT+2);
– US Richmond Manufacturing Index (m/m) at 17:00 (GMT+2);
– US CB Consumer Confidence (m/m) at 17:00 (GMT+2).

By JustMarkets

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.

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Silicon Valley Bank sale returned optimism to financial markets, but the situation remains tense