(Paris) The markets fell back into the red on Friday at mid-session after a short-lived respite from the stock market relapse of weak banking links First Republic and Credit Suisse despite firewalls to prevent the situation from getting out of hand.
Relieved in the morning by the financial aid provided to these two banks and comforted by the assurances of the European Central Bank (ECB) for the euro zone, the indices were finally down, from Paris (-0.59%) to Milan (-0.27%) via Frankfurt (-0.39%) and London (-0.29%) around 8:20 a.m. (Eastern Time).
On Wall Street, futures were down 0.50% on the Dow Jones index, 0.52% on the S index
Eleven major US banks pledged on Thursday to come to the rescue of First Republic, depositing $30 billion with the institution to bolster its liquidity and prevent the situation from escalating after the Silicon Valley Bank bankruptcies, Signature Bank and Silvergate last week.
An effort hailed by the US Federal Reserve (Fed), the Treasury and two financial regulators, as investors are terrified of a possible risk of contagion to other banking establishments.
Since March 10, these bank failures across the Atlantic have raised the specter of the 2008 financial crisis that destabilized the global economy.
In a sign of financial stress, US banks have since borrowed a total of $164.8 billion from two US Federal Reserve guarantee facilities in recent days, according to financial news agency Bloomberg.
But the stock of First Republic, the 14th largest U.S. bank by asset size, was down more than 13% in electronic trading before Wall Street opened.
And that of Credit Suisse relapsed sharply on Friday (by more than 10% around 8 a.m. Eastern time) after recovering 19.15% the day before, without managing to compensate for the worst fall in its history on Wednesday (by almost 25% ) bearing the brunt of worries about the banking system.
The struggling banking giant has received support from the Swiss central bank to bolster its liquidity, while speculation of a takeover of the banking giant has resurfaced, analysts say.
The Governor of the Banque de France François Villeroy de Galhau wanted to be reassuring.
“French and European banks are extremely strong,” he said Friday on BFM Business, and “are not in the situation of some American banks.”
However, the European Central Bank (ECB) is meeting its supervisory body for banks in the euro zone on Friday for an “exchange of views” on the banking sector after the turbulence of the past few days, AFP learned.
It is the second time that this body has been convened this week for an “ad hoc” meeting, outside the usual schedule, given the rapid developments affecting the banking sector.
Since the announcement of the ECB’s strategy, signs of appeasement have been confirmed on the government bond market, which has been extremely volatile this week.
All of this banking turmoil has fueled speculation that central banks might ease their stance on inflation in order to avoid a severe recession.
On Thursday, however, the ECB reaffirmed its determination to combat persistently high inflation by raising its key interest rates by an additional 0.5 percentage point, but refraining from deciding on further monetary tightening.
“The ECB leaves all its options open ahead of Fed and Bank of England decisions next week,” comments Axel Botte, international strategist at Ostrum AM.
Investors will therefore closely monitor the next economic indicators in order to get an idea of the timing of future monetary tightening by the Fed.
For its part, the OECD raised its global growth forecasts for 2023 and 2024 on Friday thanks to lower inflation and the reopening of China. But she mentioned several risks including the difficulties encountered by some banks.
