Introduction: Sell-off in bank stocks spreads to Asia as SVB collapse shakes markets
Good morning.
The collapse of Silicon Valley Bank grips financial markets, as global banking stocks fall despite assurances from President Joe Biden on Monday.
There have been fresh losses in Asia-Pacific stock markets today, as banking stocks continue to fall.
Japan’s Topix Banks index is heading for its worst day since March 2020, early in the pandemic, currently down 7.4%. Mitsubishi UFJ Financial Group is down 8.66%, with Mizuho Financial Group losing 7.1%
This has drawn Japan’s Topix index down by 2.7%.
Elsewhere, Hong Kong’s Hang Seng index has fallen by 2.35%.
South Korea’s KOSPI index has lost 2.4%, with its Hana Financial Group down almost 4%. Australia’s S&P/ASX is down 1.4%.
Stephen Innes, managing partner at SPI Asset Management, says:
The collapse of Silicon Valley Bank on Friday has led to the most volatile market conditions of 2023 so far.
Shares in a number of U.S. regional banks closed sharply lower Monday night, hours after President Joe Biden sought to reassure depositors and investors, saying:
Americans can rest assured that our banking system is safe.
Your deposits are safe.
On Sunday night, the Federal Reserve and Treasury increased lenders’ access to quick cash and guaranteed deposits at Signature Bank (which closed Sunday night) and Silicon Valley Bank.
But other regional banks still came under pressure, with San Francisco-based First republic lose 62% and Arizona headquarters Western Alliance Bank of 47%.
On Monday, there was a sharp fall in the European stock markets, with the UK’s FTSE 100 index shed 200 points, or 2.58%, to end at 7548 points, the lowest since early January.
However, markets are expected to open more calmly today…
Silicon Valley Bank’s collapse last week was the biggest bank failure in over a decade.
It came after SVB made a $1.8 billion loss on a sale of securities, due to the fall in prices of government bonds and mortgage-backed securities as interest rates have risen. That left it struggling to meet withdrawal requests from customers.
Expectations of further sharp increases in borrowing costs are also being reassessed, with central banks likely to be more cautious about breaking another part of the financial system.
As of Friday, investors were waiting @bankofengland interest rates peaking around 4.75% in August.
After the collapse of Silicon Valley Bank and all that, they now expect a top of just 4.25%.
Things change…
The chart below shows changes in expectations for AUG courses👇 pic.twitter.com/GH4svt5KcS— Ed Conway (@EdConwaySky) March 13, 2023
Yesterday was “a wild session on Wall Street as the failure of Silicon Valley Bank exposed the unintended consequence of the Fed’s tightening cycle,” says IG analyst Tony Plane:
As noted in recent months and in broader financial circles, the Fed has historically continued to tighten until something breaks.
While the Fed’s move to stop uninsured deposits is likely to prevent further bank runs, a potential banking crisis threat trumps high inflation any day of the week.
Reflecting this, the bond market experienced the most significant two-day drop in US Treasuries since the crash of 1987 (yields are now at 4% from 5.08% last week). After being 70% priced in for a 50 basis point rate hike last week, there is now just 12 basis points ahead of next week’s FOMC meeting.
The agenda
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07.00 GMT: UK unemployment report
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08.00 GMT: European finance ministers hold an ECOFIN conference
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10.15 GMT: MPs hold hearing on ‘Prepayment meters: guarantees and forced installations’
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12.30pm: US CPI inflation report for February
Key events
More investors expect the U.S. Federal Reserve to start tapering interest rate cuts by the end of the year, following the collapse of Silicon Valley Bank.
The CME FedWatch Toolwhich tracks investors’ expectations for the path of interest rates, suggests the Federal Reserve may raise its benchmark interest rate by a quarter point, or 25 basis points, to 4.75%-5.00%, at its meeting next week.
But by December, the market is suggesting that rates will have fallen back to around 4%-4.25%, or half a point below current levels.
There has been a “Titanic repricing” in expectations of US interest rate moves this year, say ING.
In the US, markets now see just a 50% chance of a 25bp hike in March, and fully priced in 67bp cuts by the end of the year.
Since the markets reopened after the weekend, the repricing of the Fed’s rate expectations has been massive. In the US, markets now see just a 50% chance of a 25bp hike in March, and fully priced in 67bp cuts by the end of the year. https://t.co/b2sfTgcOHJ
— ING Economics (@ING_Economics) March 14, 2023
Jim Reidstrategist on Deutsche Banksays yesterday’s dramatic session was “up there with some of the wilder days I can remember”.
I always thought that with inflation where it was, that central banks would continue to hike until they broke something, which was especially likely with the yield curve so inverted. Now they’ve broken something, is that enough for a break?
Much will depend on whether the markets and contagion risk can calm down quickly enough. If the FOMC meeting was today I strongly suspect they wouldn’t hike but a week is a long time in these markets.
Global financial stocks lose $465 billion on SVB’s concerns
Global financial stocks have lost $465 billion in market value in two days as investors cut exposure to lenders from New York to Japan in the wake of the collapse of Silicon Valley Bank, Bloomberg has calculated.
They explain:
Losses mounted today, with the MSCI Asia Pacific Financials Index falling as much as 2.7% to its lowest since November 29. Mitsubishi UFJ Financial Group Inc. fell as much as 8.3% in Japan, while South Korea’s Hana Financial Group Inc. fell 4.7% and Australia’s ANZ Group Holdings Ltd. lost 2.8%.
There are concerns that financial firms could see an effect from their investments in bonds and other instruments on the SVB-induced turmoil. Treasury yields fell on Monday amid expectations that the Federal Reserve will hold off on raising interest rates amid turmoil in the banking system.
Volatility is likely to remain the name of the game in the markets today, say ING.
US equity futures point to a marginally positive opening this morning, but markets are constantly monitoring incoming news on the health of other financial institutions, particularly US regional banks.
Silicon Valley Bank: parent company, CEO and CFO sued amid market turmoil
SVB Financial Group and two top executives have been sued by shareholders for the collapse of Silicon Valley Bankas global stocks continued to suffer on Tuesday despite assurances from US President Joe Biden.
The bank’s shareholders accuse SVB Financial Group CEO Greg Becker and CFO Daniel Beck of hiding how rising interest rates would leave the bank’s Silicon Valley Bank unit “particularly susceptible” to a bank run.
The proposed class action was filed Monday in federal court in San Jose, California.
It appeared to be the first of many likely lawsuits over the demise of Silicon Valley Bank (SVB), which US regulators seized on March 10 after a surge in deposit withdrawals.
Introduction: Sell-off in bank stocks spreads to Asia as SVB collapse shakes markets
Good morning.
The collapse of Silicon Valley Bank grips financial markets, as global banking stocks fall despite assurances from President Joe Biden on Monday.
There have been fresh losses in Asia-Pacific stock markets today, as banking stocks continue to fall.
Japan’s Topix Banks index is heading for its worst day since March 2020, early in the pandemic, currently down 7.4%. Mitsubishi UFJ Financial Group is down 8.66%, with Mizuho Financial Group losing 7.1%
This has drawn Japan’s Topix index down by 2.7%.
Elsewhere, Hong Kong’s Hang Seng index has fallen by 2.35%.
South Korea’s KOSPI index has lost 2.4%, with its Hana Financial Group down almost 4%. Australia’s S&P/ASX is down 1.4%.
Stephen Innes, managing partner at SPI Asset Management, says:
The collapse of Silicon Valley Bank on Friday has led to the most volatile market conditions of 2023 so far.
Shares in a number of U.S. regional banks closed sharply lower Monday night, hours after President Joe Biden sought to reassure depositors and investors, saying:
Americans can rest assured that our banking system is safe.
Your deposits are safe.
On Sunday night, the Federal Reserve and Treasury increased lenders’ access to quick cash and guaranteed deposits at Signature Bank (which closed Sunday night) and Silicon Valley Bank.
But other regional banks still came under pressure, with San Francisco-based First republic lose 62% and Arizona headquarters Western Alliance Bank of 47%.
On Monday, there was a sharp fall in the European stock markets, with the UK’s FTSE 100 index shed 200 points, or 2.58%, to end at 7548 points, the lowest since early January.
However, markets are expected to open more calmly today…
Silicon Valley Bank’s collapse last week was the biggest bank failure in over a decade.
It came after SVB made a $1.8 billion loss on a sale of securities, due to the fall in prices of government bonds and mortgage-backed securities as interest rates have risen. That left it struggling to meet withdrawal requests from customers.
Expectations of further sharp increases in borrowing costs are also being reassessed, with central banks likely to be more cautious about breaking another part of the financial system.
As of Friday, investors were waiting @bankofengland interest rates peaking around 4.75% in August.
After the collapse of Silicon Valley Bank and all that, they now expect a top of just 4.25%.
Things change…
The chart below shows changes in expectations for AUG courses👇 pic.twitter.com/GH4svt5KcS— Ed Conway (@EdConwaySky) March 13, 2023
Yesterday was “a wild session on Wall Street as the failure of Silicon Valley Bank exposed the unintended consequence of the Fed’s tightening cycle,” says IG analyst Tony Plane:
As noted in recent months and in broader financial circles, the Fed has historically continued to tighten until something breaks.
While the Fed’s move to stop uninsured deposits is likely to prevent further bank runs, a potential banking crisis threat trumps high inflation any day of the week.
Reflecting this, the bond market experienced the most significant two-day drop in US Treasuries since the crash of 1987 (yields are now at 4% from 5.08% last week). After being 70% priced in for a 50 basis point rate hike last week, there is now just 12 basis points ahead of next week’s FOMC meeting.
The agenda
-
07.00 GMT: UK unemployment report
-
08.00 GMT: European finance ministers hold an ECOFIN conference
-
10.15 GMT: MPs hold hearing on ‘Prepayment meters: guarantees and forced installations’
-
12.30pm: US CPI inflation report for February