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Futures higher but world markets set for aftershocks as SVB collapse ripples out

Published 03/12/2023, 02:22 PM
Updated 03/12/2023, 07:20 PM
© Reuters. The main entrance of Silicon Valley Bank is seen in Menlo Park, California U.S. March 10, 2023. REUTERS/Michaela Vatcheva

By Dhara Ranasinghe and Scott Murdoch

SYDNEY (Reuters) -Markets were set for a bumpy ride this week as the fallout from collapsed startup-focused lender Silicon Valley Bank (SVB), the biggest U.S. bank failure since the 2008 financial crisis, coincides with key economic data and policy meetings.

S&P500 futures rose 1.4% after U.S. authorities guaranteed SVB customers would have access to their deposits starting on Monday. Futures later eased to be up 0.7%

"No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer," a statement from the U.S. Treasury, Federal Reserve and Federal Deposit Insurance Corp said.

In Australia, the first major market to start trading in Asia Pacific, the S&P/ASX200 was down 0.3% in early trade.

"What investors have to expect coming into tomorrow and beyond is that we are going to be dealing with a lot of event risk," said Michael Purves, chief executive officer at Tallbacken Capital Advisors in New York.

"There are still going to lingering questions with other regional banks. Under such a such a scenario, it’s hard not to expect sustained very high rate volatility."

U.S. February inflation numbers are due out on Tuesday, followed by the UK's budget on Wednesday and the European Central Bank's interest-rate meeting on Thursday, adding to risk factors for markets.

"There's a rough ride ahead," said Pooja Kumra, senior European and UK rates strategist at TD Securities in London.

U.S. stock market volatility as measured by the "fear index," the VIX, had already shot up on Friday to its highest since October, while the ICE (NYSE:ICE) BofA Move Index, a measure of volatility in the U.S. fixed income market, rose to its highest since mid-December.

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Stock markets in the Middle East ended lower on Sunday, with the Egyptian bourse leading the declines. In Qatar, almost all the shares were in negative territory, including Qatar Islamic Bank, which tumbled 3.9%.

In another sign of possible contagion to other assets, stablecoin USD Coin (USDC) lost its dollar peg and slumped to an all-time low on Saturday. It later recovered most of its losses after Circle, the firm behind it, assured investors it would honour the peg despite exposure to Silicon Valley Bank.

Still, unease about the banking sector is likely to linger.

Investors are going into Monday's trading day with little time to digest the latest developments. SVB could have a domino effect on other U.S. regional banks and beyond. U.S. regional and smaller bank shares were hit hard on Friday. The S&P 500 regional banks index dropped 4.3%, bringing its loss for the week to 18%, its worst week since 2009.

POTENTIAL HIT Britain's government on Sunday was scrambling to minimize the damage on the country's tech sector. Prime Minister Rishi Sunak said the British government was working to find a solution to limit the potential hit to companies resulting from the failure of SVB's UK subsidiary.

Advisory firm Rothschild & Co is exploring options for the subsidiary, as insolvency looms, two people familiar with the discussions told Reuters. The BoE has said it is seeking a court order to place the UK arm into an insolvency procedure. In Asia, the SVB failure has left many Chinese funds and tech start-ups in the lurch, as the bank was a key funding bridge for groups operating between China and the U.S, the Financial Times reported on Sunday. The Chinese joint venture of SVB said on Saturday it has a sound corporate structure and an independently operated balance sheet. Having ramped up expectations for further interest rate hikes in the United States and Europe, investors are contemplating whether turmoil in the banking sector could force central banks into a re-think.

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Investors will be laser-focused on the ECB, which looks set to deliver another hefty interest rate hike on Thursday. A surprise surge in underlying inflation in February has left policymakers fretting that price pressures could prove persistent.

The ECB will be vigilant to the risks of possible contagion and will make sure liquidity is plentiful in the system, said Marchel Alexandrovich, European economist and partner of Saltmarsh Economics.

And if there is a difficult week in the markets, ECB President Christine Lagarde may "deliver a somewhat more cautious message," he said.

UK finance minister Jeremy Hunt's UK budget may be overshadowed by the SVB fallout in Britain. Hunt is expected to prioritise keeping public finances steady, resisting giveaways that could destabilise sterling, stocks or gilts.

But wide estimates for new public borrowing needs make the outlook for government bonds uncertain.

Latest comments

90% chance the market closes down big tomorrow as reality sinks in about the bailout and the coming fallout.
Contagion not contained. Another bank failure. Signature bank in NY.
Yes sir. More to follow. One Bank closure per day should we say? That is an optimistic estimate.LOL
Go gold go.
next week inflation report won't carry as much weight, any hike from now will certainly has a negative impact on banking sector at least from the depositors' view. I'm looking long now, and hey you don't have to listen to me. lol
good news the system works the lessons of 2008 have been retained
The lying media continued saying “strong economy” for so long and loud that, for sure, bank collapses could be taken by innocent readers as something totally unexpected.
On Monday the market will go up and down all day like a freshly wedded couple
those who know economics said, *with approximately 31 trillion in debt, *unreasonable increase in interest rates *stupid recipe, make wars ie see Ukraine & etc they lead nowhere, so, greetings to the power.!!
No way Biden gets re-elected
I'm sure they will find another democrat who makes the same promises and does the same things.
The trouble is the Fed has been around since 1913 when it was established and the Fed members have lied to the American public ever since.
Easy money necessary for big government spending created this mess, just like the inflation.  Money printing not only feeds government spending through the bond market, it also replaces the economic capital government takes through taxation.  Now the government bureaucrats, including the bureaucrats at the Fed, will claim to fix this, but at everyone's expense, especially the low and middle income.
Mr. Miller......you are absolutely correct. This latest development with the insolvency of SVB was not exactly predictable as to how it would play out.....but it was ultimately
You are correct......the failure of SVB was a direct result of the Fed's actions reversing course from zero percent easy money to massive rate hikes. As always......the Fed is caught flat-footed and shocked......shocked......that there would be unintended consequences with their massive rate hikes. The Fed needed to normalize interest rates after being too low for too long. But not now after the pandemic government forced lockdowns. Chair Powell and his team have it dead wrong. We are NOT in an overheating economy. We are in a RECOVERING economy and now is not the time to be raising the cost of capital on businesses throughtout America. The economy was awash with an overflowing bathtub of money in our money supply (M2) with the $1.9 trillion of Covid Stimulus spending. It will take time for the economy to absorb all of those excess funds. Too many dollars chasing too few goods always leads to price inflation. The Fed refuses to look at the money supply.
reuters aggresively to mealt down this issue is paid by 'Dajjal'
China is laughing at the incompetent USA
You are funny.
If we have a major meltdown, China will move on Taiwan.
Canada will invade US.
Canada couldn't invade P.I.E. (if it became necessary) they are so weak.
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