By John Meyer, consultant in financial markets, for Eurasia Business News, March 11, 2023
In addition to Credit Suisse, shares of other European banks also suffered. The EURO STOXX Banks industry index lost 4.89% at a low of the day.
Credit Suisse shares at trading on the Swiss Stock Exchange (SIX) on Friday, March 10, hit a new historical minimum amid a sell-off in securities of the U.S. banking sector. At the moment, quotes fell by 6.1%, to 2.463 Swiss francs (about $ 2.65). At closure the share was at 2.50 CHF, a fell of 4.84% over the day.
Securities of another Swiss bank – UBS – during the trading session on March 10 at a minimum fell by 5.43%. The EURO STOXX Banks industry index lost 4.89% at the moment.
Shares of European banks fell following the collapse in the US banking sector. Startup-focused lender SVB Financial Group (SIVB. O) became the largest bank failure since the financial crisis on Friday, in a sudden collapse that roiled global markets and stranded billions of dollars belonging to companies and investors.
According to the results of trading on Thursday, March 9, the S&P 500 Financials index fell by 4.1%, which was the maximum one-day drop since mid-2020. Shares of Bank of America fell by 6.2%, Wells Fargo – by 6.2%, JPMorgan Chase – by 5.4%. Securities of other large US banks also fell sharply.
The sell-off in the banking sector came on news of the difficulties of SVB Financial Group, the holding company of Silicon Valley Bank, which serves fast-growing start-ups in the technology and biological industries.
SVB Financial announced an emergency sale of bonds totaling $ 21 billion from its portfolio, as a result of which a loss of $ 1.8 billion was recorded The financial company also announced its intention to place shares for $ 2.25 billion to raise funds to cover losses. At the end of trading on March 9, shares of SVB Financial Group fell by 60.4%.
During the period of low rates in the United States, Silicon Valley Bank quickly increased operations. However, after the tightening of monetary policy in the country, the bank faced serious difficulties: a decline in venture financing, problems on the part of customers, as well as losses on investments made during the period of low rates.
In addition, the negative attention on the banking sector was exerted by the decision of Silvergate Capital Corp. to liquidate its Silvergate Bank, which worked with cryptocurrencies. Shares of Silvergate Capital after this news fell by 42%.
Against the background of these events, concerns about the prospects of other banks have increased in the market. Shares of Credit Suisse, in turn, have recently updated their lows amid financial difficulties and scandals related to the bank. In February, the Swiss lender reported that by the end of 2022 it received a record loss since 2008. The bank also warned that there will be significant losses in 2023. After that, its quotes on the Swiss Stock Exchange collapsed by 14.7%.
In addition, the data published by the US Bureau of Labor Statistics (BLS) revealed on Friday that Nonfarm Payrolls rose by 311,000 in February. This reading came in much higher than the market expectation of 205,000. That means the U.S. economy is not cooling under high interest rates implemented by the Federal Reserve and that further hike rates will be necessary to lower inflation. More hikes will increase the risk of a recession.
Can the U.S. Federal Reserve keep raising interest rates and defeat the U.S worst bout of inflation in 40 years without causing a recession?
Read also : How to invest in gold
Gold prices were hovering between $1,868 and $1,871 per troy ounce today, gaining $37 in one day. Silver prices were traded between $19.88 and $20.90 per ounce today (March 10, 2023).
The yellow metal has always been an excellent hedge against inflation because its price rises when the cost of goods and services rises. Gold can effectively store value over time, when paper money such as the dollar or euro loses purchasing power due to inflation. Gold is a resilient asset that resists the erosion of inflation and preserves wealth in the medium and long term.
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