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DAX, CAC, FTSE 100 – Global Banking Crisis Sparks Market Turmoil, Eyes on Central Banks

By:
James Hyerczyk
Updated: Mar 17, 2023, 21:12 UTC

Investors are on edge as fears of a global banking crisis persist, leading to market turmoil across Europe and the United States.

DAX, FTSE-100, CAC-40

In this article:

Key Takeaways

  • European shares suffer worst weekly performance since September 2022, with bank stocks leading losses
  • U.S. banks extend $30bn lifeline to embattled First Republic Bank, but concerns over brewing crisis persist
  • Traders shift focus to Federal Reserve’s meeting as expectations for smaller rate hike increase

Overview

European shares had a turbulent week, with the pan-European STOXX 600 index closing the week 3.9% lower, its worst weekly performance since September 2022.

On Friday, the index closed 1.3% lower, dragged by bank, insurance, and financial services stocks.

In Germany, the DAX settled at 14768.20, down 198.90 or -1.33%, London’s FTSE 100 Index closed at 7335.40, down 74.63 or -1.01% and France’s CAC 40 closed at 6925.40, down 100.32 or -1.43%.

European Bank Stocks Plunge, Credit Suisse Drops 8% as Lender Meltdown Sparks Panic

The bank index lost 2.6%, with HSBC, BNP Paribas, Allianz SE, and UBS Group losing between 1% and 3%. This drop came after the U.S. and European lenders’ meltdown left investors panicking about the financial sector’s health. Credit Suisse, too, reversed early gains and dropped 8.0%, following a 19% jump in the previous session.

The lender-heavy indexes of Spain and Italy each lost nearly 2% on Friday, logging their worst weekly losses in over a year and nine months, respectively.

US banks Extend $30bn Lifeline to First Republic Bank Amidst Global Banking Crisis

A $30 billion lifeline by large U.S. banks for embattled lender First Republic Bank, less than a day after battered Credit Suisse clinched a mega central bank loan, had boosted the bank index by as much as 2.2% earlier in the day.

However, later in the day, SVB Financial filed for a court-supervised reorganization under Chapter 11 bankruptcy protection to seek buyers for its assets. This news further fueled concerns over a brewing global banking crisis, and the gains from earlier in the day were quickly erased.

STOXX 600 Gains Erased as Investors Doubt ECB’s Ability to Hike Interest Rates Amid Global Banking Crisis

The ECB’s big 50-basis point (bp) interest rate hike on Thursday initially helped the benchmark STOXX 600 close 1.2% higher. Still, concerns around the European Central Bank’s ability to jack up borrowing costs going ahead, coupled with fears over a brewing global banking crisis, overshadowed the lifeline to Credit Suisse, and the STOXX 600 closed the week with losses.

ECB supervisors see no contagion for euro zone banks from the turmoil. However, investors held tight to bets that banking jitters would rein in the ECB’s ability to signal future moves amid an uncertain outlook.

Market Awaits Fed Meeting as Traders Bet on Smaller Rate Hike

The focus now shifts to the Federal Reserve’s meeting next week, with traders now seeing a 67% likelihood of a smaller 25 bps hike in the world’s largest economy. Goldman Sachs, Morgan Stanley, and at least two other banks now expect the ECB to deliver a 25-bps hike in May.

Eurozone Inflation Eases in February, but Core CPI Still Climbing

Meanwhile, Eurozone inflation eased a touch in February, according to figures released on Friday, but underlying price growth continued to accelerate on a surge in services costs. The core CPI is still climbing, making it unclear when the hiking cycle will end.

Banking Crisis Fears Grip Markets, Eyes on Fed meeting

Overall, the trading session was characterized by concerns over a brewing global banking crisis and uncertainty around central banks’ future moves. Despite supportive measures from regulators across the United States and Europe, investors remained cautious, with banking and financial services stocks leading losses.

As traders shift their focus to the Federal Reserve’s meeting next week, the outcome is likely to have a significant impact on global markets, given the current market volatility.

For a look at all of today’s economic events, check out our economic calendar.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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