February 27, 2024

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Banking crisis: the black swan is intensifying in the markets

Banking crisis: the black swan is intensifying in the markets

from “Startup BankIn the United States, in a ‘too big to fail’ bank in Europe, the speed with which the banking crisis has developed in the markets in the past 10 days has been staggering.

can the Swiss credit Not directly connected Silicon Valley Bankthe signature bank And The first republicA link to the issues, however, is the trust that investors seem to be losing towards the banking industry. Not because there are problems similar to what happened in 2008 but because they have seen so many black swans and crises in recent years that they overreacted in the slightest.

Next week’s Federal Reserve meeting is a good opportunity to bring investors’ attention back to inflation and interest rates. But it is not certain at this point whether Jerome Powell is considering reassuring the markets or continuing on the path he has been charting for about a year, making fighting inflation a top priority.

We saw what happened to Christine Lagarde on Thursday. the The changing discourse which he did not mention future increases in interest rateswas seen as dovish by markets which are now discounting interest rates to a lower peak than previously expected.

This is the big trap. Indeed, if the problems of American banks are overcome and a solution is quickly found with Credit Suisse – and always on condition that no new black swan appears – central banks very maybe to Continue to raise interest rates Since May, with the same goal as before the recent banking turmoil. Therefore, Jay Powell’s position this coming Wednesday will be decisive for the direction of the coming weeks.

Markets are ruling out a March 22 rate hike, giving a 70% chance of a 25bp hike, with the Fed rate at 4.75%-5%. But what if Powell hits the brakes? Will the markets view this decision as a panic move or will they welcome it because they estimate that the rate hike is coming to an end?

The development of the Credit Suisse drama is also a deciding factor. Is it finally “too big to save”, as “Mr. Disaster”, Nouriel Roubini has claimed, or is a good deal with UBS enough to calm things down in the markets? Bloomberg reported yesterday that UBS’ acquisition of Credit Suisse It’s a matter of hours, but even then there are problems that can cause problems.

In America, authorities have taken control of SVB and Signature Bank, where the FDIC holds up to $170 billion in bonds that the two banks bought to facilitate their sale.

Investors are still worried. They showed it on Friday with Wall Street down more than 1%, and with bond market volatility at its highest level since 2008.

The surge in interest rates so far has left US banks with an unrealized loss of $620 billion as low-coupon bonds lose value as yields rise. At the same time, depositors are shifting their money into two-year US Treasury bonds which are now yielding better returns.