Credit Suisse unease sparks fresh selloff in world stocks

By Dhara Ranasinghe

LONDON, (Reuters) – World markets were shaken by the news that Credit Suisse’s largest investor stated it couldn’t provide additional financial assistance to the Swiss bank. The news sent its shares and wider European shares plummeting.

There were signs of stability and calm in banking stocks that fell in the week following the collapse Silicon Valley Bank (SVB). Credit Suisse shares plummeted to new records.

European shares dropped almost 2% last week, European bank stock plummeted 2.5% and U.S. stocks futures fell 1%.

Investors returned to safety-havens with yields on German two-year bonds down 21 basis points to 2.7%

“The Credit Suisse share price is falling and government bonds are rallying on the back of that. Still very much driven by the perceived health of the banking sector, but this time in Europe,” said Antoine Bouvet, senior rates strategist at ING.

The European Central Bank is still leaning towards a half-percentage-point rate hike on Thursday, despite turmoil in the banking sector, given high inflation, a source close to its Governing Council told Reuters.

Asian shares rose following Tuesday’s Wall Street relief rally. The U.S. inflation data had not delivered any unexpected results, boosting hopes that the Federal Reserve would consider a smaller rate increase next week.

MSCI’s broadest index for Asia-Pacific shares outside Japan rose 0.9% after it fell 1.7% Tuesday. Japan’s Nikkei index remained flat, while an index that tracks Japanese banks, which slid 8.8% this week, rose more than 3%.

U.S. equity options fell sharply, while European banking stocks plummeted in an alarming sign for Wall Street open.

On Tuesday, battered U.S. bank stocks gained some ground due to the news that some assets of SVB were being bought by private equity and other buyout companies. Investors were hopeful that the efforts to boost confidence would prevent a larger financial crisis.

BACK TO THE CENTRAL BANKS

Data on Tuesday showed U.S. consumer prices rose 0.4%, with a year-on-year gain of 6% – in line with analyst expectations. There had been worries that stronger-than-expected data might lead the Fed to go for jumbo-sized hikes to battle inflation.

Markets were expecting large Fed rate increases last week. However, the sudden collapse of SVB has altered those expectations. Markets now expect a 80% chance that there will be a 25 basis-point hike next week.

The data that showed China’s economic activity grew in the first half of the year due to consumption and infrastructure investment was also a positive sign. It is also a sign the property sector, which has been struggling, is beginning to recover.

European traders bet on a significant increase in eurozone borrowing costs on Thursday, after markets quickly canceled their rate-hike bets.

According to Reuters, a source close ECB Governing Council claimed that the central bank is unlikely to abandon plans for a major rate move this week as it would harm its credibility.

“The ECB is behind (the U.S. Federal Reserve) in terms of a tightening cycle and has a lot to do,” Jorge Garayo is senior rates and inflation strategist at Societe Generale.

“Core inflation,” He concluded, “is still at very, very elevated levels. So we will be very surprised to not see 50 basis points delivered by the ECB.”

The dollar index, which measures U.S. currency relative to six other currencies, was slightly higher at 104.01, while the euro fell 0.5% at $1.0680.

The last oil prices were up 0.2%, after a strong decline in oil prices.

(Reporting by Dhara Rawasinghe; additional reporting by Ankur Banerjee, Singapore and Naomi Rovnick, London, editing by Christina Fincher).

The February consumer price index report has been released. It shows that inflation is up 6% compared to last year.

California Governor Gavin Newsom claims he is making a multimillion-dollar deal with Walgreens to get rid of abortion pills.

Rep. Steve Toth

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