© Reuters.
Investing.com – The main US stock indexes fell on Wall Street, on Friday, on the impact of the return of concerns about the banking sector again.
Banking stocks fell sharply in Europe on Friday, with shares in Deutsche Bank and UBS Group hurting on concerns that the worst problems in the sector since the 2008 financial crisis had yet to be contained.
Deutsche Bank shares fell for a third day by more than 14%, after a sharp jump in the cost of insuring against default late on Thursday.
Moody’s, the credit rating agency, said that despite swift action by regulators and policymakers, there is a growing risk that banking system stresses will spill over into other sectors and into the US economy as a whole, causing more damage than expected.
And the agency stressed: “The danger lies in the inability of officials to reduce the current unrest without long-term repercussions, which are likely to be “severe” inside and outside the banking sector.
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Deutsche Bank shares
Stocks fell more than 14% on Friday, after a surge in credit default swaps Thursday night, as concerns persisted about the stability of European banks.
Shares of the German lender fell for the third day in a row and have lost more than a fifth of their value so far this month.
Credit default swaps – a form of insurance for a company’s bondholders against default – jumped to 173 basis points Thursday night from 142 basis points the day before.
JP Morgan analysts commented on the Deutsche Bank crisis, saying: “We are not concerned about the bank’s financial health and the liquidity available to it.”
“We don’t see the decline in the stock and the rise in default swaps as a reflection of the bank’s fundamentals,” the analysts added.
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A bubble in the American market
Bank of America (NYSE:) analysts revealed that a new bubble has formed due to the recent banking sector crisis that has caused the collapse of 3 regional banks in the United States so far.
Analysts said in a note on Friday that money market funds are the “hot new assets” right now, noting that assets under management exceeded $5.1 trillion, up more than $300 billion over the past four weeks.
Analysts monitored the largest weekly shift to liquidity since March 2020, the largest ever inflow over a period of 6 weeks, and the largest weekly outflow of investment-grade bonds since October 2022.
Analysts said that markets stop panicking when central banks start to panic, and that historically, there has been a surge in borrowing through the Fed’s emergency discount window with the stock market dropping significantly.
They added that history testifies to the selling of stocks with the interest raised, and that when banks borrow from banks, they tighten lending standards, which leads to a reduction in lending, and this limits the optimism of small companies and ultimately to the emergence of cracks in the labor market.
Federal Reserve statement a while ago
Fed member James Bullard spoke now after the Fed’s decision to raise interest rates by 25 basis points to 5%, the highest rate since 2007.
Bullard said that inflation remains high, and US data is stronger than expected, indicating that the Fed may be sticking to a rate hike at the next meeting.
Here comes the discrepancy between market expectations that the Fed will cut interest rates by 100 basis points in June, while the Fed does not see any cut until 2024.
The Fed is trying to isolate the Silicon Valley crisis from the scene. “Silicon Valley is an unusual case,” says Bullard. He stresses strongly that it is difficult to find other banks in a similar situation.
Regarding the Credit Suisse crisis, Pollard says that the markets have so far welcomed the merger of Credit Suisse with UBS. While Europe is facing a different reality today, amid fears of the collapse of another large bank, Deutsche Bank (ETR:) due to the fall in its shares after the increase in expenses for insurance against default.
markets now
It rose by 0.2% at $1,997 an ounce.
While US gold futures rose 0.25% to $2,000.
It rose by 0.6%, to score 102.7 points.
It fell by 0.7%, to record 1.0757 against the dollar now.
Benchmark crude futures recorded a decline of about 2%, to record 74.5 per barrel.
The price of West Texas Intermediate crude fell by 2%, at $68.5 a barrel.
US stock indices now
The industrial index fell 200 points, or 0.65%, to 31,905 points.
It fell 22 points, or 0.6%, to 3,923 points.
It fell 71 points, or 0.6%, to 11,711 points.
