Business Maverick: SVB Blowout Is Wake-Up Call for Stock Bulls on Banking Risks

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Stock market investors just got a harsh reminder about the risks posed by banking industry turmoil.

“By exposing its weakness, SVB has somewhat opened Pandora’s box,” Arnaud Cayla, deputy chief executive officer at Cholet Dupont Asset Management, told clients in a note. It represents “a major psychological impact, which has awakened the market’s old demons.”on US payrolls Friday, with Europe’s benchmark trimming some losses and US futures turning positive. Still, the banking woes add to broader worries about the impact of higher rates on the economy.

The increasing willingness to speculate in zero-day-to-expiry options, the so-called ODTE products, “also poses a significant risk for the financial markets.”“Banks have been caught off guard by the Fed’s rapid increase in interest rates and the draining of excess liquidity from the financial system. This has concurrently led to and a pile of losses on bank balance sheets.”

Greil expects two events to provide more clarity in this regard next week: “Firstly, it is important that the US inflation figures – including the core rate – are falling on Tuesday, and secondly that the ECB on Thursday will not put a stronger emphasis on higher inflation risks. Ultimately, the deteriorating financing conditions as interest rates continue to rise will affect the economy over the course of the year.

 

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