Financial Markets Stabilize
On Tuesday, European equities’ advance slowed down as investors remained cautious about the recent banking turmoil. The Stoxx Europe 600 Banks index, including the biggest lenders in the region, was down by 0.1%. The regionwide benchmark Stoxx 600 (STOXX:SX5E) was down by 0.1%, Germany’s Dax (DBI:DAX) was flat, and London’s FTSE (FTSE:UKX) was up 0.1%. Meanwhile, the US stocks and Treasuries were little changed as financial markets continued to stabilize after financial-sector turbulence. The S&P 500 (SPI:SP500) slipped, and the Nasdaq 100 (NASDAQI:NDX) was also lower. In the past month, two-year Treasury yields held just above 4%, and a dollar gauge fell for the eighth time in nine days.
Youth Protests Pension Reform
French officials predict that three times more young people will join the protests on Tuesday against President Emmanuel Macron’s unpopular plan to raise the retirement age. The stakes are high for the police as they try to prevent a repeat of the chaotic scenes that marred the last demonstrations. Some universities and high schools were closed as they were blocked by student activists, and several campuses were blocked in Paris and other cities such as Toulouse and Nice. Students piled up electric scooters and waste bins to block entrances and daubed slogans against pensions reform on walls.
EU Retaliation Trade Tool
The European Union has agreed on a new trade defence tool that will allow it to retaliate against countries using punitive measures such as China’s block on Lithuanian imports over the Baltic state’s relationship with Taiwan. This anti-coercion instrument is the latest in a series of recent unilateral measures adopted by Brussels after declaring China a “systemic rival” in 2019. The agreement between the European parliament, member states, and the European Commission was reached on Monday night and is still subject to final approval in the coming weeks. The bloc has historically used the World Trade Organization to settle disputes but is increasingly disillusioned as the dispute process has been hamstrung by the US’s refusal to participate in it fully.
Swiss Banks Risky Liquidity
Swiss authorities have concluded that the country’s two biggest banks, UBS (NYSE:UBS) and Credit Suisse (NYSE:CS), could no longer be saved in the event of a liquidity crisis using emergency measures put in place after the 2008 financial crash. A government working group comprising members of the Ministry of Finance, the Swiss National Bank, and the market regulator Finma decided nearly four years ago that the special liquidity requirements for systemically important banks embedded in the Liquidity Ordinance did not safeguard the higher resilience required by the Banking Act. The group added that there was no possibility of the orderly wind-down of one of the two big banks without far greater government support than had been previously anticipated.
Eurozone Banks Cut Lending
European banks cut lending to businesses last month, even before the demise of Silicon Valley Bank (NYSE:SVB) and Credit Suisse (NYSE:CS), shook global financial markets. The banks cut their lending to eurozone businesses by 3 billion euros in February, while the increase in lending compared with a year earlier slowed down to 4.9% from 5.3% in January, according to data released by the European Central Bank on Monday. There was also a slowdown in lending to households, despite banks earning higher profits from lending than they used to during the low-interest years. Some economists think that the decline in lending could accelerate in the coming months as the strains in the banking system make banks more cautious, giving greater force to the impact of the ECB’s rate rises on economic growth.
Class-A Offices Struggle
Remote work and rising interest rates are causing financial stress in high-end office buildings. Class-A properties, which feature modern amenities and are located in central business districts, are increasingly seeing vacancies and defaults. Moody’s Analytics reported a decline in leased office space in the fourth quarter of 2022 for the first time since 2021. The owners of several high-end properties recently defaulted on their mortgages due to financial strain from rising interest rates and vacancies.
Poland Demands Belarus Sanctions
Poland’s Prime Minister called on EU members to impose new restrictions on Belarus after Russia announced its plans to station nuclear weapons in the country. The Polish government is considering imposing sanctions on transport from Belarus as well. The premier is in daily talks with EU leaders about a “tougher” sanctions package on Poland’s eastern neighbor.
Scrutinize Credit Default Swaps
The head of supervision at the European Central Bank has called on global regulators to scrutinize the trading in the market for insuring against a debt default. The credit default swap market can trigger falls in a bank’s share price and threaten a run on deposits. The chair of the ECB supervisory board has asked the Financial Stability Board to review how the market works after sharp moves in the price of such instruments preceded a sudden drop in the share prices of Deutsche Bank and other European lenders.
Swedish Mortgages Decline
The volume of outstanding mortgages in Sweden declined for the first time in February, as mortgage rates rose and the country’s housing market remained sluggish. Total lending to households grew 2.8% on year in February, marking the 10th consecutive month of slowing credit growth. The drop in outstanding loans indicates that households are paying off loans to cut cost, as short-term mortgage rates reached the highest level in 11 years in February.
Sweden Unemployment Risks Housing
Sweden’s unemployment rate unexpectedly rose to a four-month high of 7.6%, putting at risk a housing market recovery after one of the worst property slumps globally. The labor market is being dented by the fallout from higher inflation and rising credit costs in the largest Nordic economy. Analysts at SEB AB have stated that the depth of Sweden’s worst housing rout in decades will depend on how unemployment develops.