LONDON (Dispatches) -- Global shares slid on Tuesday as a brewing U.S. banking crisis prompted investors to downgrade their expectations for interest rate hikes, even ahead of key inflation data later in the day.

In under a week, three U.S. banks have collapsed. It has been the failure of technology-sector lender Silicon Valley Bank (SVB) that has rattled investor confidence and triggered a rush into safe-haven assets like bonds and gold.

Banking stocks around the world have shed hundreds of billions of dollars in value in a matter of days, while the government bond market has seen one of its biggest rallies in decades.

The MSCI All-World index was down 0.5% on the day, largely due to steep declines across Asian equity markets, while in Europe shares entered a third day of declines, down 0.1%.

Many have drawn parallels to the 2008 financial crisis, when indicators of financial market stress shot up and equities crumbled. 

SVB, which was the 16th biggest U.S. bank at the end of last year, is the largest lender to fail since 2008. Specifics of the tech-focused bank’s abrupt collapse are still something of a jumble, but the sharp rise in Fed rates in the last year, which tightened financial conditions in the startup space in which it was a notable player, seemed front and center.

Overnight the VIX volatility index, nicknamed Wall Street’s “fear gauge”, neared six-month highs and other indicators of market stress showed early signs of strain. An index of bond market volatility - the ICE BofA MOVE index - had hit a 14-year high by Monday’s close.

The S&P banking index fell 7% on Monday, its largest one-day drop since June 2020. Shares in non-U.S. lenders have come under intense pressure and a number of indicators of banking sector credit risk are showing signs of stress.

Yields on government bonds from the U.S. to Germany and Japan have dived in the last week. German two-year yields, which fell by the most at least since reunification in 1990, while Japanese yields have fallen by the most in decades.

Elsewhere, the dramatic re-pricing of U.S. rate expectations has knocked 1.5% off the value of the U.S. dollar in the last week, which in turn has helped encourage a push into gold, a traditional safe haven that has gained 5% in the last week alone to trade around $1,900 an ounce.

 

Home Depot Founder:

 ‘Wake Up’

 

 The co-founder of Home Depot, Bernie Marcus, said Americans need to “wake up” to the reality that the U.S. economy is facing tough times following the collapse of Silicon Valley Bank.

He argued that the collapse of

the bank shows the U.S. economy is not as strong as President Biden has suggested.
Marcus criticized the bank’s officials for selling off their stock before the collapse, and lamented the fact that many Americans lost their money in what he called a “woke bank”.
“I can’t wait for Biden to get on the speech again and talk about how great the economy is and how it’s moving forward and getting stronger by the day. And this is an indication that whatever he says is not true.
“And maybe the American people will finally wake up and understand that we’re living in very tough times, that, in fact, that a recession may have already started. Who knows? But it doesn’t look good,” Marcus said on Fox News.
Marcus then went on to warn how the U.S. economy is in trouble, with the Federal Reserve raising rates and inflation going in the wrong direction.
His warning is bleak. He believes the U.S. economy is in serious trouble, with the collapse of Silicon Valley Bank being a sign of things to come.
He argued that people are struggling to pay their bills and fill their tanks with gas, with the Biden administration in his view “obtuse” to such problems.
Marcus called for someone with a “sane head” to come in and understand that the U.S. cannot keep raising rates, keeping inflation as strong as it is, and taxing people more than they are already taxed.
“The Fed keeps raising rates and inflation keeps going in the wrong direction. It’s not staying where it should be. People are struggling. They can’t fill their tanks with gas. And if you think that’s a good sign, I don’t think it is. And we have an administration that’s obtuse to this. They just keep talking about the great times and how good it is. It’s not good,” he added.
On Monday, former U.S. Assistant Treasury Secretary Paul Craig Roberts warned that despite Biden’s recent statement about the safety of bank deposits, “the banking system is not safe, because the five largest U.S. banks have risk exposure that is two times world GDP”.
“There is no possibility that the banks have the capital to cover this risk,” he said.
On Tuesday, Moody’s Investors Service placed First Republic Bank and five other U.S. lenders on review for downgrade, the latest sign of concern over the health of regional financial firms following the collapse of Silicon Valley Bank.
Western Alliance Bancorp., Intrust Financial Corp., UMB Financial Corp., Zions Bancorp. and Comerica Inc. were the other lenders put on review by Moody’s. The credit rating company cited concerns over the lenders’ reliance on uninsured deposit funding and unrealized losses in their asset portfolios.
Moody’s also downgraded Signature Bank and withdrew its credit rating, following the lender’s closure over the weekend.
San Francisco-based First Republic dropped a record 62% on Monday, while Phoenix-based Western Alliance tumbled an unprecedented 47%. Dallas-based Comerica slid 28%.