© Reuters. FILE PHOTO: Monitors displaying stock index prices and the Japanese yen exchange rate against the US dollar are seen at the Tokyo Stock Exchange in Tokyo, Japan January 4, 2022. REUTERS/Issei Kato/File photo
by Dhara Ranasinghe
LONDON (Reuters) – There was renewed unease in world markets on Wednesday as Credit Suisse’s biggest investor said it could not provide more financial support to the Swiss bank and sent its shares and broader European shares crashing once again. sent to slip.
Signs of calm and stability in banking stocks, which tanked last week after the collapse of Silicon Valley Bank (SVB), soon gave way to renewed selling as Credit Suisse shares plunged to record levels.
Europe’s bank index has now seen more than 120 billion euros ($127.08 billion) evaporate since March 8. The index was last down 6.4% at 1154 GMT. It dragged European shares down 2.4%
Investors turned to safe havens as the two-year German bond yield fell more than 30 basis points to 2.60%. The two-year Treasury yield has declined 98 basis points over the past five days, the biggest decline since the week of Black Monday on October 19, 1987.
“Credit Suisse share price is falling and government bonds are rallying behind it. Still heavily driven by the perceived health of the banking sector, but this time in Europe,” said Antoine Bouvet, senior rates strategist at ING.
Despite turmoil in the banking sector, the European Central Bank is still leaning towards a half-percentage-point rate hike on Thursday, given high inflation, a source close to its governing council told Reuters.
Markets are “scared” by the Credit Suisse headlines, said Richard McGuire, head of rates strategy at Rabobank in London.
This caused a drop in share prices and a jump in short-dated German bonds, but he did not think it would affect the central bank’s decision-making.
“For today Credit Suisse is the dish of the day, but we don’t think it will be a long-term trend,” he said.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.6%, having fallen 1.7% on Tuesday. The index was flat, while an index of Japanese banks, which has slipped 8% this week, jumped more than 3%.
But US equity futures fell sharply as European banking shares declined in an ominous sign for the Wall Street open. US stock futures fell 1.6% at 1155 GMT.
US bank stocks were hurt on Tuesday as news that the private equity and buyout giant was trying to scoop up some of SVB’s assets recovered some ground. This left investors hopeful that efforts to boost confidence would avert a wider financial crisis.
return to central banks
Tuesday’s data showed US consumer prices rose 0.4%, a year-over-year gain of 6% — in line with analyst expectations. There was concern that the stronger-than-expected data could prompt the Fed to push for a jumbo-sized hike to fight inflation.
As recently as last week, markets were bracing for a return to a big Fed interest rate hike, but the SVB’s rapid collapse has changed those expectations, with markets pricing in a 25 basis point slide next week. There is an 80% chance of an increase.
Also helping to boost sentiment were data showing growth in China’s economic activity in the first two months of the year, driven by consumption and infrastructure investment, and signs of a recovery in the beleaguered asset sector.
In Europe, where markets sharply dialed back ECB rate-hike bets at the start of the week, traders were again betting on a big increase in euro zone borrowing costs on Thursday.
According to a Reuters report, a source close to the ECB Governing Council said the central bank is unlikely to abandon plans for a big rate change this week as it would damage its credibility.
“The ECB lags behind (the US Federal Reserve) in terms of a tightening cycle and has a lot to do,” said Jorge Garayo, senior rate and inflation strategist at Societe Generale (OTC: ).
He added, “Core inflation is still very, very high. So we would be very surprised if the ECB doesn’t give 50 basis points.”
In currency markets, which measures the US currency against six rivals, was up 0.9% at 104.67, with the euro down 1.4% at $1.0580.
Oil prices posted strong gains and both closed with crude down 1.5% at $76.22 and light crude at $70.23.
($1 = 0.9443 Euro)