April 1, 2023


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American banking crisis? Wall Street is going down sharply

It should have been a very quiet session awaiting Friday’s data from the US labor market. However, in the second part of the trade there were strong declines. The Nasdaq fell 2.05% to end the day at 11,338.35. The S & P500 index, after losing 1.85%, was at 3,918.32 points. The Dow Jones index also returned 1.66% and ended the session with a score of 32,254.86 points.

A very strong sell-off in the shares of the largest banks was surprising. JPMorgan, Wells Fargo and Bank of America all fell more than 6%. Morgan Stanley, Citigroup and BNC Financial fell 3-5% each.

The red lead leads to the Silicon Valley Bank financial group that specializes in type financing investment capital. The relatively small ($212 billion in assets) and California-based banking group is down a staggering 60%. It was a reaction to the board’s announcement of an emergency share issue plan to provide equity. major investors Perhaps this was reminiscent of the summer of 2007, when the previous financial crisis began in the United States of America. In addition, shares of Singature Bank were discounted by 12%, which has been linked to problems with cryptocurrency bank Silvergate Capital.

In general, some failures in the financial sector, accustomed to cheap credit and inflated valuations, are inevitable when the Fed sharply raises interest rates. Over the past several decades, most financial crises have been preceded by increases in the federal funds rate. According to the futures market, the latter is set to rise by another 50 basis points within a week. And in the middle of the year it reached 5.50-5.75%. mention it Just a year ago, the Fed’s interest rates were close to zero.

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Wall Street is also nervous because of the labor market data that was released before the start of Friday’s session. Economists expect the February BLS report to show employment growth of 205,000. And to keep the unemployment rate at its lowest level in more than half a century. Strong payrolls will likely determine the fate of a 50-point increase in the federal funds rate.


Christopher Colany

Senior Analyst at Bankier.pl