The most important ingredient for the financial crisis is missing

Dhe most important ingredient for a global financial crisis is the distrust between banks. When the interbank market stops working, the situation escalates. It’s not that far at the moment. The main focus on the markets is therefore less on stock and bond prices and more on interbank interest rates such as the Libor in America and the Euribor in Europe. Here it is from the market: everything is in the green area. market works. The interest rate development is unremarkable, as was the case on Thursday and Friday last week.

This is an important message and a success for the US Federal Reserve and government, which declared deposits at the troubled banks safe and accessible over the weekend and are ready with liquidity to prevent further shortages.

Panic has not yet broken out among the bad guys, but there is a higher level of nervousness. The stock market traders had recently settled into a feel-good scenario with falling inflation rates, an end to interest rate hikes and at most a mild recession.

The good mood is now being severely clouded by concerns about the state of the banking sector. Until Thursday, interest rate increases were primarily considered positive for banks, which their most recent annual reports also confirmed. It is now becoming clear that higher interest rates also have disadvantages, that debtors get into trouble and that the price losses for bonds associated with a turnaround in interest rates can catch their holders on the wrong foot. The extent to which this is the case remains a secret. Many investors do not like such uncertainties.

Commerzbank and Credit Suisse particularly affected

The German stock market slipped dax on Monday, led by the financial stocks, fell by 3 percent to less than 15,000 points, which is still significantly more than at the beginning of the year with just under 14,000 points. The Commerzbank share was the weakest value with discounts of 15 percent.

Similar price losses suffered only CreditSuisse. The price of the bank’s credit default swaps (CSD) hedges rose to a record 451 basis points on Monday. So investors have to pay 451,000 euros to insure bonds worth ten million euros. This crisis indicator is still unremarkable at other banks in Europe.

At the same time, bank stocks were also avoided on the other European stock exchanges. In the Euro Stoxx 50, the seven weakest stocks all came from the financial sector, with price losses of 6 to 8 percent. The American stock market was much more relaxed: Dow Jones and Nasdaq opened trading on Monday with a plus, larger bank stocks only fell slightly in price.

However, bonds that are considered safe were in demand. Bunds with shorter maturities rose in price by leaps and bounds. The return on paper with a term of two years fell from 3.3 percent on Thursday to 2.5 percent. An unusually large leap.

It shows the nervousness in the market. For them, the V-Dax New is a good indicator, a measure of price fluctuations. It was up 17 points on Friday from its relaxed level to more than 20, indicating heightened alert, and rose to 26 points on Monday. However, when Corona broke out in March 2020 and after the Lehman bankruptcy in autumn 2008, the value rose to more than 80 percent.

Market observers struck rather moderate tones. Many are counting on a change in monetary policy, as the consequences of a withdrawal of liquidity and an increase in the cost of capital for the economy are now becoming apparent. “The weakest link falls,” said Benjamin Bente, managing director of the fund company Vates Invest. However, since more links are not expected to fall, many observers have now corrected their expectations with a view to the Fed’s central bank meeting next week and are more likely to assume a pause in interest rate hikes.

Chief equity strategist Sven Streibel from DZ Bank considers the current market reactions to be excessive. “What happened brings back memories of the financial crisis and scares investors away. With enough foresight, this could even be a good time to buy shares,” says Streibel. “The framework conditions for shares have improved in recent months, the earning power of companies is also very high thanks to the economic recovery in China, the reporting season confirms that.” Streibel will therefore increase his price targets for the European share indices in the next few days. “We don’t see a Lehman 2.0, but rather an Evergrande 2.0, when there was even a brief commotion after the Chinese real estate group’s difficulties.”