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Global Markets | The fall of Credit Suisse weighs on Europe



(Paris) The Western stock markets relapsed on Wednesday, the renewed fears with regard to the banking sector and in particular Credit Suisse making investors very feverish before meetings of the European and American central banks.

The rebound of the day before did not hold in Europe: Paris fell by 3.58% and London by 3.83%, signing their worst session since March 2022. Frankfurt gave up 3.27%. The European banking sector index (Stoxx 600 Banks) plunged nearly 7%.

US markets were in the red: the Dow Jones fell by 1.77%, the NASDAQ index by 0.95% and the broader S&P 500 index by 1.56% shortly after the European close. The VIX index, which measures market volatility, jumped more than 20% on Wednesday, indicating nervous investors.

Oil at its lowest since December 2021, sharply falling rates, rising dollar, wave of volatility: the signs of great nervousness among investors could be read on all markets.

Equities had held up particularly well over the past four months when central banks raised interest rates to contain strong and stubborn inflation, but uncertainty set in last week after several US bank failures, including that of the emblematic Silicon Valley Bank (SVB).

On Wednesday, fears of contagion risk were accentuated with the plunge in Credit Suisse shares (-24.24% at the close, the worst fall in its history), which came after its main shareholder, the Saudi National Bank, ruled out investing more to prop up the struggling bank for two years.

The day before, Credit Suisse had acknowledged “substantial weaknesses” concerning its internal controls for its financial reports.

In a domino effect, European banking stocks collapsed by more than 10% for Deutsche Bank, Commerzbank, Société Générale, BNP Paribas, Banco Sabadell and Banca Monte dei Paschi.

In the United States too, medium-sized players and regional banks were affected, in particular the Californians First Republic (-20.19%) and PacWest (-18.40%). But the tide was rising to some behemoths in the sector in the United States, such as Capital One (-4.96%), Citigroup (-6.05%) and Wells Fargo (-4.29%).

The stress was particularly visible on the bond market and especially on short rates: the yield on the American two-year bond fell by 38 basis points to 3.83% and its German counterpart by 48 basis points to 2, 39%. This sudden movement also reflects in market expectations a more flexible posture of central banks in their monetary normalization.

“Whether the Fed (the US central bank) continues or halts rate hikes next week is likely to depend on developments on the financial front more than economic data,” said firm economist Thomas Bauer. of research RichesFlores.

On Thursday, the European Central Bank will deliver its monetary policy decision. Investors were expecting until recently a sharp rise of 0.50 percentage points, a view now in question.

In the United States, the decline in retail sales in February, a sign of a weakening in consumption, as well as the monthly drop in wholesale prices, point to a slowdown in the next increase. Federal Reserve rate next week.

Safe havens sought

The euro fell to its lowest in two and a half months against the dollar, weighed down by the plunge in banking stocks in Europe: it lost 1.69% to 1.0551 dollars around 1:07 p.m. (Eastern time). This is its biggest daily decline since March 2020.

A safe haven, gold rose 0.85% to $1,920 an ounce.

Crude prices continued to fall. The barrel of WTI slipped below $70 to its lowest level since December 2021: around 1:10 p.m. (Eastern time), it was worth $66.39 (-6.94%). A barrel of Brent North Sea sold for 72.51 dollars (-6.46%), also at a low for 15 months.

Bitcoin fell 1.99% to $24,146 as the prospect of looser monetary conditions limited the decline.

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