market report
As of: 03/13/2023 9:29 p.m
The fear of further bank failures after the collapse of the Silicon Valley Bank cost the DAX three percent at the start of the week. In the process, new hope germinated on Wall Street.
The stock market world has changed since last weekend. While the collapse of the Silicon Valley Bank (SVB) sent shockwaves through the international financial markets, a whole new hope sprang up on Wall Street during the day: what if the US Federal Reserve (Fed) scaled back its next rate hike due to the recent turmoil or skip it altogether?
“Given the stress in the banking system, we no longer expect the FOMC to raise interest rates at its next meeting on March 22,” wrote the analysts at Goldman Sachs. This hope of an interest rate pause helped prices on Wall Street again above. The standard value index Dow Jones was able to contain its losses and closed 0.3 percent lower after having already lost 1.1 percent on Friday.
The technology index Nasdaq 100 was also up 0.8 percent thanks to two takeovers in the biotech sector. Due to the earlier switch to daylight saving time, the US stock exchanges will close at 9:00 p.m. Central European Time this week and next.
Containment or domino effect?
Meanwhile, the all-clear cannot be given. The main lesson learned from the financial crisis 15 years ago is that state institutions can very quickly lose control of what is happening on the banking market. The crucial question for the financial markets is whether the financial supervisory authorities and the banking sector themselves drew the right conclusions from the debacle at the time.
If you believe US President Joe Biden, this is the case and the banking system is safe. SVB customers’ deposits were guaranteed, and the Federal Reserve launched a new lending program for the banks. But in the meantime, with the First Republic Bank, another US money house is apparently facing major problems. “Investors are concerned that more banks could throw in the towel in the face of rising interest rates and yields,” commented Christian Henke of IG Markets.
The US regulators have secured customer deposits after the closure of the SVB and the New York Signature Bank, said portfolio manager Thomas Altmann from the trading house QC Partners. This step “also shows how seriously the US Federal Reserve, the FDIC security fund and the Treasury Department are taking the case,” added Altmann. If mistrust of smaller banks increases and deposits are withdrawn on a large scale, a dangerous domino effect could develop.
The fact is that the capitalization of the big banks has improved significantly since the crisis. The Federal Association of German Banks (BdB) considers the consequences of the SVB bankruptcy for the local financial institutions to be very limited. “The German banks are robust, stable and resilient,” said the BdB. “They have increased their capital massively since 2008.” Since the financial crisis at that time, the average core capital ratio has risen from 9.3 percent to 15.8 percent.
DAX falls below 15,000
The collapse of the two US regional institutes SVB and Signature Bank gave the German stock market an uncomfortable start to the week. In the end, the DAX had to give up the round mark of 15,000 points and lost three percent.
Other indices such as the European selection index EuroStoxx 50 recorded similarly high losses. The market-wide Stoxx Europe 600 reached its lowest level in ten weeks. The Stoxx Europe 600 banking index has lost nine percent since last Thursday.
US consumer prices are due for release tomorrow. The next interest rate decision by the European Central Bank (ECB) will follow on Thursday. Investors should hope that the data will not exacerbate the difficult situation.
Update economy from 03/13/2023
Stefan Wolff, HR, March 13, 2023 10:00 a.m
Oil prices fall back
The turbulence on the US banking market also left its mark on the commodity markets. An economic downturn would slow demand, which would put significant pressure on oil prices. In the evening, European Brent crude oil was down 2.4 percent at $80.50 per barrel (159 liters). Meanwhile, the US government approved a controversial oil drilling project in Alaska. The energy company ConocoPhillips is to produce around 600 million barrels of oil on state territory in the coming decades.
Gold price rises
In view of the great uncertainty on the financial markets, gold’s hour has come. The listing for a troy ounce (around 31.1 grams) rose to its highest level since early February. In the evening, the troy ounce was 1.9 percent higher at $ 1,913. “Fear of a new banking and financial crisis drove investors to the safe haven of gold,” commented Alexander Zumpfe, precious metals dealer at Heraeus. In addition, there is the expectation that the US Federal Reserve could slow down the pace of interest rate hikes after the recent turmoil. Other experts referred to the weaker dollar exchange rate. This makes gold cheaper for investors from other currency areas.
Pfizer announces acquisition of billions
The US pharmaceutical giant Pfizer is buying the biotech company Seagen, which specializes in innovative cancer treatments, for a price of 43 billion dollars. Pfizer uses its financial resources “to advance in the fight against cancer,” said company boss Albert Bourla. Seagen is currently growing enormously and expects sales to increase by twelve percent to $2.2 billion this year. Pfizer wants to complete the purchase in late 2023 or early 2024 – the approval of the authorities and Seagen shareholders is still missing.
Commerzbank loses double digits
The shares of Commerzbank and Deutsche Bank were under great pressure in the DAX. Despite the assurances of the banking association that the local institutes are stable, the Commerzbank share lost more than 14 percent at times. In Zurich, the shares of the crisis-ridden Credit Suisse fell to a record low. UBS shares also fell. Other European financial institutions such as BNP Paribas and Société Générale in Paris, ING and NN in Amsterdam and Banco BPM and UniCredit in Milan also posted sharp price losses.
Volkswagen builds battery plant in Canada
The VW Group is building its next plant to manufacture its own battery cells for electric cars in Canada. The first such factory of the PowerCo division outside of Europe is planned in St. Thomas in the province of Ontario, the carmaker announced. Start of production in St. Thomas is scheduled for 2027. In Europe, Volkswagen is initially planning six factories for its own battery cells for electric vehicles, also in order to become less dependent on Asian suppliers. VW recently announced plans to build a plant for its new Scout pickup truck brand in South Carolina. “With the decisions for cell production in Canada and for the Scout site, we are accelerating the implementation of our North America strategy,” said CEO Oliver Blume.
Porsche earns significantly more
Despite delivery problems, the sports and off-road vehicle manufacturer Porsche has grown significantly in the past year. At 6.8 billion euros, earnings before interest and taxes were 27.4 percent above the previous year’s figure. In the year of its IPO, the Stuttgart-based company increased sales by 13.6 percent to 37.6 billion euros. As already known, sales increased by 2.6 percent to 309,884 cars.
SAP sells Qualtrics stake to US financial investor
The software group SAP has sold its majority stake in the data analysis company Qualtrics to the financial investor Silver Lake for $7.7 billion. The DAX group announced that Silver Lake and the Canadian pension fund CPPIB had acquired the 423 million Qualtrics shares held by SAP for $18.15 each. This represents a premium of 73 percent over the average 30-day trading price before SAP announced that it was considering selling its 71 percent stake. Qualtrics has an enterprise value of around $12.5 billion.
HSBC takes over British subsidiary of Silicon Valley Bank
The major British bank HSBC has taken over the British subsidiary of the troubled Silicon Valley Bank (SVB). The UK government said the transaction was “facilitated by the Bank of England in consultation with the Treasury”. “No taxpayer money is involved and customer deposits have been protected,” it said in London. Commentators in London spoke of a success for the tech industry in the country.
Facebook group is considering a decentralized Twitter alternative
The Facebook group Meta is considering a Twitter alternative. “We are considering an independent, decentralized online network for text updates,” confirmed a Meta spokesman on Saturday night, according to media reports. It is believed that there are opportunities for a place where, among other things, public figures can “share updates about their interests”.
Model plaintiff designated for Wirecard claims for damages
In the struggle for possible damages for investors damaged by the Wirecard scandal, the Bavarian Supreme Regional Court has appointed the model plaintiff for the investor model case. The investor was selected from the plaintiffs from around 1,800 suspended proceedings and now has until mid-June to make a written statement to the court. Then it is the turn of the model defendants. About a year ago, the Munich I Regional Court paved the way for the test case. In a large proportion of the cases, the defendants also include the auditing company EY. Wirecard collapsed in the summer of 2020 after the board admitted that 1.9 billion euros allegedly booked in escrow accounts could not be found. The former Wirecard boss Markus Braun is currently being tried in Munich. EY had certified the fake balance sheets of the former DAX group for years. Model proceedings should allow central questions to be clarified by a higher authority. The sample decision then provides the guidelines for further proceedings.
Boeing can deliver 787 Dreamliner again
The US aircraft manufacturer Boeing can hand over its 787 Dreamliner long-haul jet to customers again. The US Federal Aviation Administration announced that Boeing had dispelled the authority’s concerns. The Airbus rival had to halt deliveries around two weeks ago because additional inspections of a fuselage component became necessary.
Oil company Aramco with record profit
The state-owned oil company Saudi Aramco recorded a sharp jump in profits last year thanks to high oil prices and increased global demand. The surplus rose to $161 billion in 2022 from $110 billion a year earlier, the Saudi industry giant announced on Sunday. This is the group’s largest net gain since going public at the end of 2019.