The markets fell back into the red on Friday mid-session following a short-lived respite from the relapse on the stock market 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 reinforced by the assurances of the European Central Bank (ECB) for the euro zone, the indices finally registered a decline, from Paris (-0.59%) to Milan (-0.27%) via Frankfurt (-0.39%) and London (-0.29%) around 12:20 GMT (8:20 a.m. EDT).
On Wall Street, futures were trending down 0.50% on the Dow Jones index, 0.52% on the S&P index and 0.11% on the tech-heavy NASDAQ.
Eleven major US banks pledged Thursday to come to the rescue of First Republic, depositing $ 30 billion in this establishment to strengthen its liquidity and prevent the situation from escalating following the bankruptcies of Silicon Valley Bank, Signature Bank and Silvergate last week.
An effort hailed by the US Federal Reserve (Fed), the Treasury and two financial regulators, while investors are terrified of a possible risk of contagion to other banking establishments.
Since March 10, these bank failures across the Atlantic have revived the specter of the 2008 financial crisis which had destabilized the global economy.
Cash injections
In a sign of financial strain, 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 action of First Republic, 14e American bank by the size of the assets, lost more than 13% in the electronic exchanges before the opening of Wall Street.
And that of Credit Suisse relapsed sharply on Friday (by more than 10% around 12 p.m. GMT or 8 a.m. EDT) following 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 regarding 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 solid,” he said on Friday on BFM Business, and “are not in the situation of certain 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 following the turbulence of the past few days, AFP learned.
This 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 may be easing their stance on inflation to avoid a severe recession.
On Thursday, however, the ECB reaffirmed its determination to fight still-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 before the decisions of the Fed and the Bank of England 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 the Fed’s future monetary tightening.
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.