Credit Suisse worries reignite global sell-off

By: Michael Wilson

March 16, 2023 10:14 AM

After hearing that Credit Suisse's largest investor will not be able to supply the Swiss bank with any additional financial support, both the bank's stock price and the value of equities around the world fell on Wednesday, causing a fresh round of market anxiety.

Inflation data from the United States indicated economic weakness and a decrease in prices.

As a result of increased instability in banking equities and shifting interest rate expectations, yields on U.S. Treasuries and bonds issued in the euro zone plummeted. As investors flocked to haven assets, the price of gold continued its current upswing.

Expectations that the Federal Reserve may pause or slow down increasing rates were boosted by data on inflation and banking sector instability released on Wednesday.

As Credit Suisse's largest shareholder announced it could not increase its interest beyond 10% due to regulatory difficulties, the stock price of Credit Suisse (CSGN.S) plummeted 24.2%, going below 2 Swiss francs ($2.18). Credit Suisse's stock price in the United States fell to a new low.

That's the question on everyone's mind: "Are we headed for another financial crisis?" Commonwealth Financial Network's CIO in Waltham, MA, Brad McMillan, commented on the matter. That's the main factor right now.

Stocks in financial institutions such as JPMorgan Chase & Co (JPM.N), Citigroup (C.N), and Bank of America Corp (BAC.N) plunged, dragging down the S&P 500 banking index (.SPXBK) by 3.62%. KBW's regional banking index (.KRX) fell 1.57 percent.

Among 49 countries, stocks tracked by the MSCI World Equity Index (.MIWD00000PUS) fell by 1.34 percent.

Bank stocks had shown signs of stabilizing after the collapse of Silicon Valley Bank (SVB) last week, but this was followed by further selling when Credit Suisse shares hit new lows.

"Because of the decline in Credit Suisse share price, government bonds have been gaining ground. This time in Europe, the banking sector's perceived health is a major factor "an ING senior rates strategist named Antoine Bouvet stated.

Notwithstanding the uncertainty in the banking industry, a source close to the European Central Bank's Governing Council told Reuters that the bank is still leaning toward raising interest rates by a quarter of a percentage point on Thursday due to strong inflation.

The rapid collapse of SVB has altered market expectations that had been preparing for the return of big Fed interest rate hikes as recently as last week. Investors are split on whether or not the Federal Reserve will raise interest rates by 25 basis points at their March meeting.

The U.S. Commerce Department reported on Wednesday that retail sales fell 0.4% in February, which was about in line with predictions. The initial estimate for January's growth was 3.0%, but this has since been revised up to reflect growth of 3.2%.

"The main lesson here for Fed meeting is that while the inflation problem is not fixed, does the Fed acknowledge they have more pressing difficulties," McMillian said. " It's more likely that they'll go with 25 basis points, but it wouldn't surprise me if they went flat.