The western stock markets wanted to end the week with a good taste in their mouths, but the banks have not allowed it. More specifically, Credit Suisse, which is once again at the epicenter of the ‘earthquake’ with a new collapse in its shares. The fear of a new financial crisis has not dissipated on either side of the Atlantic. Consequently, and despite a clearly positive start to the session on the Old Continent, sales have been imposed and the main selective register falls of more than one percentage point. The losses are less pronounced than in the past days, but in the case of the Spanish market they are more than enough to show the worst weekly balance from february 2022: the Ibex 35 has dropped a 5.81% since last Friday and has fallen below 8,800 points.
Variable income says goodbye to a week to forget. The red numbers have been regular visitors on the trading floors and the appearance of the main indicators is not exactly rosy. The EuroStoxx 50, a benchmark in Europe, has accumulated losses close to 4% over the last five days. It has been his worst week since September and he ends it below 4,100 points.
The blow has been harder for the Italian and Spanish markets, whose main selectives (the FTSE MIB and the Ibex, respectively) are more exposed to banks, that is, the sector that has been worst off on the stock market in recent days. In the case of the Spanish index, the three worst sessions of the exercise have been given this week (Monday, Wednesday and this Friday).
In fact, the Ibex 35 shows its most negative weekly balance in more than a year: it has lost 5.81% Since last friday. Only in this session it has fallen by 1.92% and has ended at 8,719.3 units. Banco Sabadell, Bankinter, Unicaja and BBVA have been its worst components, leaving between 14% and 20% accumulated.
Joan Cabrero, a technical analyst and advisor to Ecotrader, believes that “in the worst case” the Spanish selective may continue to fall back in the short term “to the area of 8,000 points.” However, this technical analyst places the first support in the 8,630 integers, that is, very close to the current level.
Credit Suisse and First Republic: declines continue
The uncertainty in the markets broke out just a week ago. The collapse in the US of Silicon Valley Bank (SVB) and, later, of Signature Bank set off alarm bells. Financial institutions, especially medium-sized ones, came to be in the spotlight. And the fear moved shortly after to Europe, with Credit Suisse sinking on the stock market on Wednesday to historical lows of its price.
Numerous experts have stressed over these days the differences between the current situation and what happened at the end of 2008, when the fall of Lehman Brothers started the last great global financial crisis.
This same morning, the Department of Bankinter considered that the “scratches” received by the banks on the stock market do not have an “objective justification”. Along the same lines, Axel Botte, global strategist at Natixis IM, assures that “the (European) banking system does not show weaknesses nor significant exposure to distressed foreign institutions.
And not only the analysis houses have shown their surprise at the nerves in the parquets. The vice president of the European Central Bank (ECB), Luis de Guindos, defended yesterday at a press conference that the banks of the Old Continent are “resilient” and the Supervisory Board of the organization, which met this Friday in an extraordinary way, has opted for not taking any action.
All in all, fear has continued to condition the markets in both the US and Europe. On this side of the Atlantic, Credit Suisse has seen its share price plummet again to 12% due to the leakage of their deposits, although later it closed, moderating the decline somewhat, with a drop of around 8%. However, it has not reached the historical lows that it registered just two days ago.
On the other side of the ‘pond’, despite the fact that yesterday in the United States the prospects seemed to improve with the rescue of First Republic, the joy was short-lived. Several analysts have questioned whether the financial support transferred to the bank will fix its ability to generate profits. One of the most critical voices has been that of the founder of the Pershing Square manager, Bill Ackman, who maintains that the measure only serves to give “an false sense of confidenceIn addition, it states that the fact that the large banks have injected money into the Californian entity “spreads the risk of contagion”. First Republic Bank collapses 26% at the European close.
What will the Federal Reserve do next week?
The recent financial tensions have been unleashed days before the big central banks they had to make new decisions on interest rates. The first to come to the fore was yesterday the ECB which, despite the unknowns, kept its word and raised the price of money by 50 basis points. Thus, he made it clear that his priority is to fight against inflation in the euro zone and not the stability of the financial sector.
The appointment will be that of the US Federal Reserve (Fed) next week. Its rate decision will be known on Wednesday. Before the liquidation of Silicon Valley Bank, the governor of the Fed, Jerome Powell, opened the door to increase the increases and return to 50 basis points. However, that scenario now seems unlikely and the market for swap fixed in a quarter point the next adjustment, with 75% of the positions in this scenario, according to data from CME FedWatch Tool.
“Although given the events, the most prudent thing would be to pause rates to digest the consequences of the regional banking problems, the Federal Reserve is focused on inflation and will evaluate a 25 basis point hike if conditions permit,” IG analysts point out. “If financial tensions subside, we expect the Fed to raise 25 basis points,” say Bank of America (BofA) strategists. The quarter point seems the most restrictive scenario and the option for the central bank not to touch rates also exists.
in haven mode
The investors they have returned to bonds before the new doubts that assail the market. In other words, it is seeking refuge in sovereign debt. Banking tensions are undoing part of the ‘heating’ that returns have been accumulating due to the rise in interest rates and the general falls in bonds in 2022. This Friday when the stock markets closed, the yield of the bundthe ten-year German bond, falls 8% or 18 basis points, which marks the reverse of the increase in its price, up to 2.1%.
Before the banking tensions began, its return was around 2.7%. Buys are also concentrated in the two-year German bond, which is reflected in its yield drop, which fell 24 basis points or 9.2% to 2.38%. Similarly, the Spanish bond rose, with its return dropping 15 basis points, to 3.22%, and the Italian, whose yield subtract 14 basic points, up to 4.04%.