(News Bulletin 247) – The specter of a new financial crisis, fifteen years later, froze the atmosphere yesterday on the main equity markets in Europe (-2.90% for the CAC40, -3.04% for the DAX), while Wall Street showed more restraint after heavy losses the day before.
As a reminder, Silicon Valley Bank (SVB), a banking institution specializing in the financing of technology companies, is suffering. According to Reuters, SVB is the banking partner of nearly half of US venture-backed start-ups that went public in 2022. This establishment had to urgently sell $21 billion of debt securities, which put it on the market. led to a loss of 1.8 billion dollars and its parent company, SVB Financial Group, was forced to carry out an emergency capital increase of 2.25 billion dollars.
The regulator immediately reacted by placing the establishment under its control, and the Fed specified that it would lend the necessary sums to requests for withdrawal from customers of other banks, to eliminate the risk of a “bank run”. Another weakened establishment, Signature Bank, was automatically closed by the regulatory authorities.
And it was precisely the continued rise in Fed Funds that precipitated SVB’s downfall. “A bank lends its customers’ deposits in order to generate a return”, explains Mounir Laggoune, CEO of Finary. “This is where the leaders of SVB will make a choice that will precipitate its downfall. They are buying more than $80 billion in mortgage-backed securities (MBS). 97% of MBS have a term of 10 years, and a yield of 1.56%. At the time, this rate seemed very attractive. SVB decided to (almost) not hedge against a rise in rates.”
“During 2022, the FED will deal a fatal blow to SVB by raising its rates. “Risk-free” bonds now pay 5%, against 1.56. At the same time, SVB customers can no longer raise as much funds, and their deposits are starting to slow.”
Since the SVB debacle, operators’ forecasts on the shape of the Fed Funds curve and the value of the terminal rate have been drastically revised downwards, the option of a pause and then the start of a drop as of this been gaining ground, against a backdrop of fears of entering recession. And this even though last week, the resolutely offensive tone of J Powell before the Parliamentarians sent a perfectly opposite message, boosting the probabilities of a 50 bp hike in the Fed Funds for the March FOMC…
Goldman Sachs estimates that the US Federal Reserve (Fed) should raise rates by 25 basis points (0.25 percentage point) after its next meeting on March 22, compared to its previous expectation of 50 basis points (0.5 points).
Hence an intense nervousness, translated by a volatility in its yardstick.
No major statistical figure appeared on the macroeconomic agenda on Monday, an agenda which will gradually become denser this week.
On the securities side, the banks have paid a heavy price on the Parisian market, like Societe Generale (-6.23%) or BNP-Paribas (-6.80%). Just like financials in the broad sense, such as the insurer Axa’ -5.88%) or the asset manager Amundi (-6.52%). A whole section of the cyclical rating will also have been heavily penalized, like emblematic files such as Alstom (-6.16%), or Faurecia (-8.26%).
Across the Atlantic, major equity indices ended Monday’s session in mixed order, with the Dow Jones, rich in financial and cyclical records, contracting 0.28% to 31,819 points, and the Nasdaq Composite managing to grab 0.45% to 11,188 points. Session closed almost at equilibrium for the S&P 500 (-0.15% to 3,855 points), a benchmark barometer of risk appetite in the eyes of fund managers.
A point on the other risky asset classes: around 08:00 this morning on the foreign exchange market, the single currency was trading at a level close to $1.0690. The barrel of WTI, one of the barometers of risk appetite in the financial markets, was trading around $74.00.
To follow as a priority on the macroeconomic agenda this Tuesday, the various consumer price indices in the United States at 2:30 p.m., for the month of February.
KEY GRAPHIC ELEMENTS
The plot of a marked bearish engulfing candle, in weekly view, at the top of the trend, on resistance levels (historical highs), militates at least for a corrective readjustment, the first phase of the entry into broad consolidation above 7,000 symbolic points. If this level were to yield, even more on a gap, the bearish message would take shape, with the key being a succession of corrective legs and technical rebounds.
Note also, in daily view, the very clear break in the 20-day moving average (in dark blue). The RSI oscillatory is in full navigation from one terminal to another.
FORECAST
In view of the key graphic factors that we have mentioned, our opinion is negative on the CAC 40 index in the short term.
This bearish scenario is valid as long as the CAC 40 index is trading below the resistance at 7225.00 points.
The News Bulletin 247 board
Hourly data chart
Chart in daily data
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I have over 8 years of experience working in the news industry. I have worked as a reporter, editor, and now managing editor at 247 News Agency. I am responsible for the day-to-day operations of the news website and overseeing all of the content that is published. I also write a column for the website, covering mostly market news.
