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13 Mar

Silicon Valley Bank’s bankruptcy could be a trigger for the financial crisis. The US Federal Reserve may stop rate hikes

March 13, 2023

By JustMarkets

SVB shares fell by 44% on Friday, adding to a 60% drop in the previous session. Meanwhile, larger US banks JPMorgan (JPM), Citigroup (C), and Morgan Stanley (MS) were also down. The fall of SVB shares, which began on Thursday, spread to other American and European banks. According to Reuters, US banks lost more than $100 billion in the stock market, and European banks lost another $50 billion over the past two trading days. This has caused panic among investors, and that panic could intensify if people start withdrawing their deposits from banks on Monday, fearing a 2008 scenario. At the close of the stock market on Friday, the Dow Jones Index (US30) decreased by 1.07% (-4.53% for the week), and the S&P 500 (US500) lost 1.45% (-4.77% for the week). The NASDAQ Technology Index (US100) fell by 1.76% on Friday (-5.09% for the week).

According to analysts at JPMorgan, the recent sell-off in big bank stocks is an “exaggeration,” mainly because of the stronger monetary position of these lenders compared to their smaller peers.

The Board of Governors of the Federal Reserve has announced that it will hold an emergency closed-door meeting at 4:30 p.m. (GMT+2) on March 13, 2023. It is likely that the sudden collapse and FDIC seizure of SVB Financial Group (SIVB) on Friday was the reason for the Fed’s accelerated meeting. SVB was the largest bank failure since the 2008 financial crisis. Its collapse shook the entire banking system.

Following news of the SVB Financial Group (SIVB) bankruptcy, investors limited their bets on a 50 basis point rate hike in March to 40% from about 80%. The threat that something systemic may be brewing in the banking system, forcing many regional banks out of business, will not be well received by the government. And the likely response could be intense political pressure on Federal Reserve Chairman Jerome Powell to stop raising rates.

The British clearing bank The Bank of London is considering an application to rescue the British division of the bankrupt US bank Silicon Valley Bank. The news of the British bank’s interest comes a day after the Bank of England said it was seeking a court order to put SVB UK into bankruptcy proceedings after US regulators seized control of its parent SVB Financial Group earlier Friday.

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The Labor Department reported that Nonfarm payrolls rose by 311,000, well above the consensus forecast of 205,000 but below the revised 507,000 in January. The labor market remains too strong for the Fed to consider stopping rate hikes and cutting rates. But payrolls data indicate that the first signs of a “cooling off” are on the horizon.

Stock markets in Europe were mostly down on Friday. German DAX (DE30) was 1.32% lower (-1.09% for the week), French CAC 40 (FR40) fell by 1.30% (-2.24% for the week), Spanish IBEX 35 (ES35) decreased by 1.47% (-2.24% for the week), British FTSE 100 (UK100) was 1.67% lower (-2.50% for the week).

British Prime Minister Rishi Sunak said on Friday that he was in talks with the United States and the European Union to bring down inflation amid fears that it could make European markets uncompetitive. Europe fears that $369 billion in US subsidies for electric cars and other clean technologies could disadvantage companies on the continent.

Saudi oil giant Aramco on Sunday reported record net income in 2022, helped by higher energy prices, higher sales, and better oil product margins.

Asian markets were mostly down last week. Japan’s Nikkei 225 (JP225) decreased by 0.14% for the week, China’s FTSE China A50 (CHA50) lost 4.34% for the week, Hong Kong’s Hang Seng (HK50) fell by 5.47% for the week, India’s NIFTY 50 (IND50) was down 0.31%, and Australia’s S&P/ASX 200 (AU200) closed negative 2.01% for the week.

China’s legislature confirmed the continued leadership roles in the central bank and finance ministry for Yi Gang and Liu Kun. China plans to redouble efforts to overcome persistent financial risks and technological bottlenecks in President Xi Jinping’s third five-year term.

In the commodities market, futures on orange juice (+6.85%) and lumber (+2.36%) showed the biggest gains last week. Futures on natural gas (-19.04%), cotton (-7.12%), palladium (-5.59%), gasoline (-3.94%), WTI oil (-3.77%), Brent oil (-3.72%), wheat (-3.6%), corn (-3.36%) and silver (-2.98%) showed the biggest drop.

S&P 500 (F) (US500) 3,861.59 −56.73 (−1.45%)

Dow Jones (US30)31,909.64 −345.22 (−1.07%)

DAX (DE40) 15,427.97 −205.24 (−1.31%)

FTSE 100 (UK100) 7,748.35 −131.63 (−1.67%)

USD Index 104.64 −0.67 (−0.67%)

Important events for today:
  • – Indian Consumer Price Index (m/m) at 14:00 (GMT+2);
  • – Fed emergency closed-door meeting at 17:30 (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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