Why is the market landscape still cloudy

Hasty intervention of the Swiss authorities can and Forced marriage Between the two largest Swiss banks, it calmed the markets a bit and removed the possibility of an immediate banking crisis, but we must admit that the explosive 10 days spent on international markets left very strong marks.

Since Wednesday, March 8th, when the US company’s problems became public Silicon Valley Bank Until the morning of Monday, March 20th when the exchanges were asked to respond to news of the catch Swiss credit (CSGN ZURICH CS NYSE) By UPS (UBSG ZURICH, UBS NYSE), investors ran into something they hadn’t expected so much: problems in the banking system of Western Europe and the USA.

Whatever the specific reasons for the problems on both sides of the Atlantic, it is a fact that the image international investors have of banks has changed a great deal since March 8th. It is clear that some US regional banks, especially small and medium-sized banks, are currently facing serious problems, as these banks were not adequately prepared to deal with the large increase in interest rates.

Correspondingly in europe the episode with Swiss credit Investors’ reaction showed that the markets are ready to gobble up any bank that appears to be in a weak position, even if it is in fact healthy. It is true that the immediate intervention of the supervisory authorities, in cooperation with the political leadership, reassured depositors and investors, and the merciless beating of bank shares stopped.

However, this does not mean that our ten difficult days will not leave marks behind us, nor that it is reasonable to expect a return to the status quo ante of the banking industry internationally. This is clearly demonstrated by the difficulty that US regional banks are having in trying to shore up their capital and reassure depositors.

American bank First Republic Bank (FRC NYSE) has not yet been able to agree with potential investors despite the injection of $30 billion provided to it in deposits by major US banks, coordinated c. B. Morgan Chase (JPM NYSE). Another bank in a position of weakness and looking for capital, which is also an American bank Backwest Bancorp (PACW NYSE), yesterday to abandon its efforts to find investors to participate in the capital increase. The bank argued that the climate was not conducive to raising capital and told investors it had already taken other measures to support it.

But these measures depend almost entirely on state aid, which indicates that investors currently do not trust these banks. Accordingly, in Europe we see that the markets are not yet ready to return shares of major banks to levels close to price levels. before March 8th. In our eyes, it is clear that investors are still not happy with the banking industry and we believe that many of them are ready to knock it again if negative news or even unconfirmed information about any problems comes out again.

But other than investors’ reluctance to push banking stocks higher again, the industry’s woes have created another fear among financial and stock market analysts. Reducing the appetite of American and European banks to lend to companies and citizens in the United States and Europe.

This fear is based on the assessment that banks will become more conservative in their behavior and will try to avoid granting loans that involve increased risks. This theory holds that this will cause a general reduction in credit expansion, Something that would limit economic activity and could lead the economy towards recession and of course would hurt the profitability of most companies. Whoever notes that such fears may be premature is probably right. But that doesn’t mean much at the moment. This fear makes many investors very cautious and willing to sell at the first opportunity if they see something that confirms – or think it confirms – their fears.

In this difficult investment climate, the big puzzle is what stance central banks will take from now on. Will they continue to raise interest rates to fight inflation while at the same time taking the measures they deem necessary to ensure the smooth functioning of the banking system? Will they put the brakes on – even temporarily – so that they can assess the true state of the banks and the extent of the problems? Will they stop raising interest rates forever so as not to hurt the banks?

the European Central Bank She did not hesitate to raise benchmark interest rates by 0.50% last week but committee chair Christine Lagarde has refrained from speaking clearly about what she intends to do next, but has left the board members free to express their personal opinions. Regarding what the US Federal Reserve will do yesterday, the opinions we heard were many. Some, including economists at Goldman Sachs and well-known fund manager Bill Ackman, have argued that he should not take any steps because of the turmoil.

Tesla’s Elon Musk has argued that the Fed should cut interest rates by 0.50% because the situation is already very critical. Most investors were expecting a 0.25% rise, believing that if the Fed and Governor Powell abruptly halt increases, they would send a signal of serious concern about the health of the banking system. What nearly everyone who gave their views agreed on was that a 0.50% increase would be a very risky move at this time, and that even if a 0.25% increase occurred, it would have to be accompanied by a clear message. It is from Governor Powell that the Fed will be very cautious going forward and will not rush to raise interest rates any further.

His point was interesting Bill Dudley, a former senior Fed official, said that whether the central bank raised interest rates by 0.25% or kept them steady, it should send a message to markets that rate hikes will continue in the coming months. according to Dudleythe battle against inflation has not yet been won and the banking system is in much better shape than it was 15 years ago during the 2008 crisis, so the right move is Continuation of the upward trend From reference interest rates provided action is taken to enhance liquidity (in his estimations) few banks will encounter problems.

Finally, the feed it Commander Powell chose the safest path and avoided surprises. They raised the benchmark interest rate by 0.25%, as expected by the vast majority of investors. They agreed with the assessment that problems in the banking sector would act as a brake on lending to the economy, and the governor acknowledged that this would have an effect similar to that of higher interest rates. They omitted from the announcement the reference to the expected continued interest rate increases, which have been repeated constantly in recent months, and replaced it with reference to a possible rate hike if necessary.

The commander echoed her conviction feed it The banking system is healthy and strong and stressed its collapse Silicon Valley Bank is an exception. Regarding inflation, the governor said there are clear signs that the downswing process has begun, but stressed that there is still a lot of work to be done.

It is clear from the market’s reaction to the announcement and the governor’s press conference that investors believe that we have reached the end of the interest rate hike process, which is clearly evident in the decline of the dollar against other currencies and the significant decline in bond yields. • Bonds and US treasury bills with interest and the clear rise in gold and silver. For a while, we’ve also seen stock markets react positively S&P 500 index to increase by 1%.

Shortly before the end of the meeting, however, the situation changed and Standard & Poor’s 500 It finally closed down 1.65%.. The reason for the change in direction was the statements of the Governor and Treasury Secretary Janet Yellen regarding the problems of the banking sector. With these statements, the two officials seemed unwilling to provide a comprehensive guarantee for all bank deposits.

Confirming the dissatisfaction of the markets with the problems of banks, the shares of regional banks immediately turned sharply lower and their index fell. by more than 5%, which eventually leads to the withdrawal of the rest of the shares. From this reaction, it becomes clear that investors are not yet ready to forget what happened in the past two weeks and have serious doubts about the health of regional banks. As long as they continue to feel this way, the market outlook will remain cloudy and investor sentiment will remain very sensitive.

Perhaps the governor and minister will have to offer investors more.