The markets calmed down on Tuesday and opted for share purchases, with strong rises for banks, after the US today added to the optimistic atmosphere that was breathed in the European banking sector.
The volatility generated in recent sessions by the banking turmoil seems to have calmed down given the messages of calm from the president of the European Central Bank (ECB), Christine Lagardethis Monday, and US Treasury Secretary Janet Yellen on March 12.
(Janet Yellen defends the ‘soundness’ of US banks.).
US investors also showed their optimism regarding a foreseeable rise in interest rates of 25 basis points in their session tomorrow, Wednesday, once the monetary policy meeting of the Federal Reserve (Fed).
In Europe, the stock markets were gaining strength until reaching increases of close to 2.5% in the case of the Spanish stock market (2.45%) or that of Milan (2.53%); and more moderate increases in London (1.79%); frankfurt (1.75%); Paris (1.42%) and the Euro Stoxx 50 (1.51%). With tokyo closed for holiday, Hong Kong rose 1.4%, seoul, 0.38%; in Chinathe market of Shenzhen advanced 1.6% and that of Shanghai0.64%, all overcoming yesterday’s bad day, caused by fears of a banking crisis in the US and Swiss.
(Timeline of the collapse and banking crisis in the United States).
In Wall Streethe Dow Jones Industrials rose 0.98%, the S&P 500 1.30% and the Nasdaq 1.58%, with the financial sector as one of the winners of the day (2.54%) after energy and non-essential goods.
Yellen assured today that the US authorities are willing to guarantee the deposits of other banks that are in trouble, as they already did with the failed ones Silicon Valley (SVB) and Signatureintervened by the Government two weeks ago.
The stock markets received a great boost from banks after the insistent words of support for this sector, something that was reflected in the subindex KBW of banks, within nasdaqwhich progressed by 5%, and the KRE from regional banks, within the S&P, which rose 5.7%. First Republicone of the most affected by the SVB intervention, shot up 30% today after losing 47% yesterday; PacWest Bancorp advanced 19% and Western Alliance 15%. Large entities also advanced, including Bank of America (3 %) JPMorgan Chase (2.7%) and Citigroup (2.2%).
(College students will learn financial education with Porvenir).
Yellen defended on Tuesday the “solidity” of the country’s banking system and assured that the situation caused by the problems of two entities is already stabilizing thanks to the “decisive” action of the Government and the Federal Reserve. These messages were added to the statements made the day before by Lagarde before the European Parliament, in which he insisted that the eurozone banking sector “is resilient, with strong capital and liquidity positions“.
Credit Suisse
Bloomberg
Credit Suisse in the spotlight
On Monday, the markets experienced a hectic session after last Sunday UBS will buy Credit Suisse, and this Tuesday both closed with increases in New York: the first, 12%, and the second, 2.66%. We will have to wait now how the market takes Credit Suisse shareholders and investors, especially bondholders, are going to file lawsuits against an operation that they consider to have been the big losers.
The rescue of Credit Suisse and its merger with UBS raises questions about the role of contingently convertible bondsthe so-called “CoCos” in financial jargon.
(Colombian banking, far from being infected by the crisis in the US.).
In the case of the collapse of an entity, the shareholders are the first to lose their investment and then would come hybrid debt investors such as “CoCos”, subordinated bonds and senior debt; however, Switzerland has come up with a different formula at Credit Suisse, in which it places “CoCos” first.
Such bonds are designed to be converted into shares in the event that the issuer (the bank) experiences an adverse financial situation, such as a significant decrease in their capitalization or in their solvency ratios.
The Fed studies whether to pause the rate hike
Amid the uncertainty in the banking sector caused by the bankruptcy of SVB and Signature Bank, the Fed is evaluating at its two-day meeting today whether it should pause the pace of its interest rate hikes.
The regional bank crisis is creating a lot of uncertainty about the advisability of future rate hikes in the United States. Lace Investors’ expectations of lower rates are a source of fragility for fixed income markets, and any further correction would generate volatility.
Investors now believe there is about an 83% chance the central bank will raise interest rates by 0.25 percentage point for the second time in a row, according to data from the CME Group. The bankruptcies of SVB and Signature Bank and that of Silvergate Bank they were given in a space of 48 hours, which has significantly altered the perspectives of investors on what the Federal Reserve decides tomorrow.
EFE
