Global stocks fell on Tuesday as the looming U.S. banking crisis prompted investors to lower their expectations for interest rate hikes, even ahead of key inflation data due later in the day.
As recently as a week ago, investors were recovering from a reality check that led many to assume that rates around the world would likely rise much higher and stay that way for longer than anticipated.
In less than a week, three U.S. banks have collapsed. In particular, the bankruptcy of Silicon Valley Bank (SVB) was the one that most shook investor confidence and triggered a race to safe-haven assets such as bonds and the gold.
Bank stocks around the world have lost hundreds of billions of dollars in a matter of days, while the government bond market experienced one of its biggest rallies in decades.
MSCI’s world equity index was down 0.5 percent, largely due to sharp declines in Asian stocks, while European stocks fell 0.1 percent in their third day of declines.
Short-term U.S. Treasury yields rose 14 basis points to 4.17 percent, but with their biggest one-day drop since 1987 on Monday, it remained at its lowest level in six months.
Many have drawn parallels with the 2008 financial crisis, when indicators of financial market stress soared and stock markets plummeted. However, Kit Juckes, chief currency strategist at Société Générale (EPA):SOGN), claimed that the current situation is much more like the US savings bank crisis of the 80s, in which hundreds of small banks failed when the Federal Reserve raised rates to control inflation.
SVB, which at the end of last year was the sixteenth largest U.S. bank, is the largest lender to fail since 2008. The details of its abrupt collapse remain unclear, but the Fed’s sharp rate hike over the past year, which tightened financial conditions in the startup sector, in which it was a leading player, appears to have figured prominently.
During the night, the VIX volatility index, dubbed Wall Street’s “measure of fear,” approached six-month highs and other indicators of market tension showed the first signs of concern. A bond market volatility index — the ICE BofA MOVE index — touched its highest level in 14 years at Monday’s close.
On the other hand, the drastic revision of rate expectations in the United States has reduced the value of the dollar by 1.5% in the last week, helping to boost the purchase of gold, a traditional refuge that has gained 5% only in the last week, to close to $ 1,900 an ounce.
The greenback had a respite on Tuesday, advancing 0.7 percent against its Japanese counterpart to 134.11 yen and 0.3 percent against the euro to $1.070.
Nerves pressured the prices of the raw and the Brent futures They fell below $80 a barrel.