Hold onto your hats, folks, because the world markets are in for a wild ride this week! Silicon Valley Bank (SVB), the collapsed startup-focused lender, is causing a ripple effect throughout the global economy, and it’s not looking good.
This is the biggest U.S. bank failure since the 2008 financial crisis, and it’s coinciding with some major events in the economic world. U.S. inflation numbers are coming out on Tuesday, followed by the UK’s budget on Wednesday and the European Central Bank’s interest-rate meeting on Thursday.
“There’s a rough ride ahead,” warns Pooja Kumra, senior European and UK rates strategist at TD Securities in London.
The “fear index,” or VIX, which measures stock market volatility in the US, has already spiked up to its highest since October. Meanwhile, the ICE BofA Move Index, which measures volatility in the US fixed income market, has risen to its highest since mid-December.
Stock markets in the Middle East have already taken a hit, with the Egyptian bourse leading the declines. Qatar Islamic Bank, in particular, has taken a tumble, falling 3.9%. And there’s even been a sign of contagion to other assets, as stablecoin USD Coin (USDC) lost its dollar peg and slumped to an all-time low on Saturday.
But the biggest concern is the domino effect that SVB could have on other US regional banks and beyond. U.S. regional and smaller bank shares were hit hard on Friday, with the S&P 500 regional banks index dropping 4.3%. This brings its loss for the week to 18%, its worst week since 2009.
The British government is also scrambling to minimize the damage on the country’s tech sector, as SVB’s UK subsidiary faces insolvency. Advisory firm Rothschild & Co is exploring options for the subsidiary, and the Bank of England has said it is seeking a court order to place the UK arm into an insolvency procedure.
The SVB failure has also left many Chinese funds and tech start-ups in a lurch, as the bank was a key funding bridge for groups operating between China and the U.S. If turmoil in the banking sector forces central banks into a re-think, it could impact expectations for further interest rate hikes in the United States and Europe.
Investors will be keeping a close eye on the European Central Bank, which is set to deliver another hefty interest rate hike on Thursday. A surprise surge in underlying inflation in February has left policymakers worried that price pressures could prove persistent.
All in all, it’s going to be a bumpy ride. But we’ll be watching closely and keeping you updated. Stay tuned!
