European indices were trading like penny stocks on Monday as risk-off trade gripped markets despite HSBC acquiring SVB’s UK arm and US authorities stepping in to protect US depositors.
The Italian FTSE MIB was down around 4% at the time of writing Spanish IBEX was down over 3%. The FTSE 100 was down around 2.3%. All European indices were off the lows as this article was written.
“Despite the best efforts of governments and regulators, the market was still very edgy on Monday as investors considered the fallout from SVB’s collapse,” said AJ Bell investment director Russ Mould.
European banks were among the worst performers on Monday as fears gripped investors despite the absence of evidence of financial pressure among other institutions.
Standard Chartered was down over 6% at the time of writing.
US Interest Rates
SVB abruptly shifted the market narrative from interest rate hikes to financial stability last week. However, attention quickly snapped back to expectations of the Federal Reserve’s next move on Monday.
US futures had opened the session higher but the rally faded as we moved towards the US open. The positivity in US futures was attributed to the dialling down of interest rate hike expectations during the volatility caused by SVB’s failure.
“This situation has also significantly impacted expectations for the upcoming Fed decision with many now expecting a 25bp hike when it seemed almost certain for some that the US central bank would raise rates by 50 bp previously,” said Walid Koudmani, Chief Market Analyst at online investment platform XTB.com.
Goldman Sachs said they now expected there would be no rate hike at the Federal Reserve’s March meeting due to market volatility and disruption of the banking system.
Further volatility
Although European indices had recovered from the lows of the session, analysts highlighted the skittish nature of market and warned of more volatility this week.
“In any case, markets remain very reactive and susceptible to further developments and could continue to be volatile throughout the week as a major domino effect could cause widespread risk-off moods leading to further losses for stocks and riskier assets,” said Walid Koudmani.
The US President is expected to make a speech today, and tomorrow we will receive the next instalment of CPI date.