by Laetitia Volga

PARIS (Reuters) – Another difficult session is looming on Wall Street and European stock markets fell sharply mid-session on Wednesday as fears for the banking sector grew with Credit Suisse’s plunge.

Futures contracts point to a decline of 1.69% for the Dow Jones, 1.82% for the Standard & Poor’s-500 and 1.49% for the Nasdaq. In Paris, the CAC 40 fell 3.5% to 6,891.58 around 12:05 GMT. In Frankfurt, the Dax dropped 2.86% and in London, the FTSE 2.39%.

The pan-European FTSEurofirst 300 index fell by 2.29%, the EuroStoxx 50 of the euro zone by 3.33% and the Stoxx 600, at its lowest since the beginning of January, lost 2.57%.

Pressure on banking stocks is mounting after Credit Suisse shares fell to an all-time low as the Saudi National Bank, its largest shareholder, ruled out further financial aid to the troubled bank. It was enough to exacerbate concerns about the banking sector, already shaken by the bankruptcy of SVB and Signature last week in the United States.

The rapid rise in interest rates by central banks has mechanically led to a loss in value of the bond portfolios held by banks, which has led some observers to doubt the will of the Federal Reserve and the European Central Bank to continue their monetary tightening through sharp rate hikes.

“Market expectations for monetary policy have shifted, wiping out nearly 50 to 75 basis points of tightening by June in a few days of turmoil,” said Axel Botte, international strategist at Ostrum AM.

“Reassuring words (from Christine Lagarde, ECB President, Thursday) on the state of European banks and implicit support for the banking system if needed would be welcome to ‘sweeten the pill’ of the expected 50 points, but a an accommodative turnaround would be a very bad signal”.

Investors will learn at 12:30 GMT US producer prices and retail sales in February.

WALL STREET VALUES TO FOLLOW

VALUES IN EUROPE

On the Zurich Stock Exchange, Credit Suisse fell by more than 20% to its lowest level ever. In turn, the Stoxx banking index lost 6.66%. In Paris, Crédit Agricole, BNP Paribas and Société Générale drop from 6.16% to 12.95%.

In Frankfurt, Commerzbank and Deutsche Bank lost 9.86% and 8.33% respectively, while in London, HSBC dropped 4.75%.

“Overall, the banking sector is in much better shape (than during the 2008-2009 financial crisis). There can be idiosyncratic issues that create a stir…I’m less concerned about lasting contagion. We have the necessary tools,” said Salman Ahmed at Fidelity.

Beyond banks, Inditex, the world leader in ready-to-wear and owner of Zara, fell 5.28% after announcing a sharper-than-expected increase in its capital expenditure. Swedish competitor H&M fell 8.55% after reporting weaker-than-expected sales growth from December to February.

RATE

The renewed risk aversion also benefits government bonds, which sharply lowers their yields. That of ten-year Treasuries lost more than ten basis points to 3.5261%.

On the European market, the trend is more marked with a ten-year German Bund yield down 23 basis points to 2.225%.

EXCHANGES Also affected by the difficulties of Credit Suisse, European currencies are seeing red: the euro fell by 1.36%, below 1.06 dollars, the pound sterling and the Swiss franc lost around 0.8% against the greenback.

The dollar, favored by the renewed volatility, logically rose against a basket of international currencies (+0.97%).

OIL

Oil prices are back in the red, at their lowest level in three months, as concerns over Credit Suisse take precedence over hopes of an increase in demand for crude in China.

Brent lost 1.55% to 76.25 dollars a barrel and US light crude (West Texas Intermediate, WTI) 1.57% to 70.21 dollars.

(Laetitia Volga, editing by Kate Entringer)

Copyright © 2023 Thomson Reuters