by Laetitia Volga

PARIS (Reuters) – European stock markets ended sharply lower on Wednesday, as Credit Suisse’s setbacks heightened investor concerns for the banking sector, on the eve of a high-risk meeting of the European Central Bank.

In Paris, the CAC 40 lost 3.58% to 6,885.71 points, its lowest since January 11. The British Footsie lost 3.83% and the German Dax lost 3.27%.

The EuroStoxx 50 index ended down 3.46%, the FTSEurofirst 300 2.99% and the Stoxx 600 2.92%.

The latter has lost 3.81% since the start of the week, which brings it to close at its lowest level since January 4.

This new difficult day for the markets is due to statements by the head of the Saudi National Bank, the main shareholder of Credit Suisse, who ruled out new financial aid to the Swiss bank, for regulatory reasons.

This announcement, which is not particularly surprising according to Rabobank, comes in a new context. The banking sector has been shaken for several days by serious concerns related to the American SVB, whose sudden bankruptcy raises many questions about the consequences of monetary tightening by central banks on banks.

Credit Suisse, which has long been in well-identified trouble, is much more embedded in the global financial system than SVB, with many subsidiaries outside Switzerland, said Andrew Kenningham, chief economist at Capital Economics.

The market turmoil could affect the European Central Bank’s decision on Thursday to hike rates. Until recently, an increase of 50 basis points was almost confirmed – the ECB itself having made announcements in this direction – but now the scenario of a rise of a quarter of a point is favored by the money markets, with the deposit rate peaking at 3.25% this year.

“The easy decision for the ECB on Thursday is to go for 25 points, to continue the upward cycle, while underlining the current risks. If things calm down, the ECB could in May return to 50 points hikes” , said Piet Christiansen, an analyst at Danske Bank.

VALUES

On the Zurich Stock Exchange, Credit Suisse fell 24.24%.

As a result, the Stoxx banking index lost 6.92%, its biggest daily drop since Russia’s invasion of Ukraine on February 24, 2022. In Paris, Crédit Agricole, BNP Paribas and Société Générale gave up from 5.21% to 12.18%.

In Frankfurt, Deutsche Bank lost 9.25% while in London, HSBC dropped -4.96%.

AT WALL STREET

Wall Street does not remain unscathed and its main indices fell from 1.15% to 2% at the time of the closing on the Old Continent.

The publication at the start of the afternoon of several indicators maintains the hope that the Federal Reserve will be less aggressive in its monetary tightening next week, a prospect that is not enough to support the trend.

RATE

Benchmark bond yields are falling on both sides of the Atlantic, with strong investor interest in assets deemed safe on the one hand and the prospect of less restrictive central banks on the other.

That of ten-year Treasuries lost 21.5 basis points to 3.4212%.

That of the ten-year German Bund fell by more than 30 points to 2.118%, the lowest since February 3.

CHANGES

Also affected by the difficulties of Credit Suisse, the European currencies see red: the euro depreciates by 1.73%, to 1.0546 dollars, the pound sterling and the Swiss franc also yield more than 1% against the greenback.

The dollar, benefited by the renewed volatility, logically rose against a basket of international currencies (+1.28%).

OIL

Oil prices fall to their lowest since December 2021 as concerns over Credit Suisse take precedence over hopes of rising demand for crude in China.

Brent lost 6.12% to 72.71 dollars a barrel and US light crude (West Texas Intermediate, WTI) 6.53% to 66.67 dollars.

(Laetitia Volga, edited by Blandine Hénault)

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