The Paris Bourse ended the first session of the week 2.9% lower at 7,011 points, penalized by a sharp decline in banking stocks, with BNP Paribas down 6.8%, Société Générale down 6.2% and Crédit Agricole down 3%.

The decline in banking stocks reflects investors' mistrust and the adjustment of their portfolios following the collapse of Silicon Valley Bank (SVB).

The bank's difficulties have reawakened fears about the fragility of the financial system, against a backdrop of rising interest rates (which are devaluing the stocks of Treasury bills that serve as quasi-liquidity collateral) and a slowdown in activity.

Moreover, an undeniable domino effect has spread, with Signature Bank also reportedly on the verge of liquidation, First Republic -78%, Western Alliance -75%, Zions Bancorp -45%, Charles Schwab -401%, Comerica -33%...).

Bank of America's name is also being bandied about, but as a 'systemic' bank it has nothing to fear, with FED and Treasury support guaranteed.

It seems difficult to assess the banking sector's exposure to the case, but many analysts are trying to allay concerns that have recently surfaced among investors (has SVB lost out big time with start-ups in the 'crypto' universe, with the bankruptcy of Silvergate, the banker in the 'crypto' universe on March 8, sowing doubt?).

The affair is obviously a 'black swan' that has mobilized the highest political and monetary authorities: the White House, the Treasury, the FDIC, the FED, the SEC, etc.

Joe Biden has already taken the floor to underline the "solidity" of the US banking sector, and to assure us that this is not a "bail out" (a rescue using public money), but rather the implementation of temporary (and in fact unlimited) guarantee mechanisms for the assets of bank customers (who are offered a $25 billion credit line in case of need).

Another reason for relief was the Fed's guarantee over the weekend that all the Californian bank's retail and corporate customers would be able to recover their funds in full.

This may have put out the fire and prevented a bank run on the part of credit institutions, but it also had another spectacular consequence: a 100-point drop in 3 sessions in 2-year yields, from 5.08% to 3.99% around 3pm.

The U.S. '10-yr' has eased by -20pts to 3.5%, the '1-yr' from 5.01% to 4.35%, the '6-month' from 5.13 to 4.73%: in other words, the markets are betting on the FED's rate hike cycle to come to an immediate halt (0.00% in March vs. 0.50% anticipated last Thursday, and nothing thereafter): the fight against inflation would quite simply be abandoned right now!

While it's true that the announcement of a bank default immediately revives memories of the 2008 financial crisis, we think it's too early and still unjustified to make such comparisons at the moment", write the teams at US broker Edward Jones.

We believe that a credit risk should not be ruled out as economic conditions weaken, but SVB remains a very small institution compared to the US banking system ($19,800 billion)", adds the broker.

If the problems of US banks were to worsen, the sharp drop suffered by the major stock market indices last week could well be prolonged.

The week also promises to be a lively one on the monetary policy front, as well as on the corporate and economic fronts.
Caution on world markets is likely to be reinforced by tomorrow's publication of the latest US inflation figures, which should reveal whether price rises are finally slowing down.

In terms of monetary policy, the ECB - which is far from having reached its inflation target - was due to raise its key rates by a further 50 basis points on Thursday, and is likely to stay on course for further rate hikes.... but can it do so and not align itself with the FED (otherwise the Euro, already up 0.8% at $1.0730, could soar beyond $1.08 and even $1.10).

Our OATs are down 21pts at 2.80%, German Bunds are down 23pts at 2.26%... but Italian BTPs are only down 15pts at 4.17%.

With inflation set to remain fairly high, and further interest-rate hikes to come, the current configuration creates a difficult environment for risk assets, as evidenced by the recent chaotic performance of stock market indices.

It seems to us too early to place big risky bets on the simple hope that central banks will do everything exactly right, at the right time, without the markets losing their heads at some point along the way", warned Björn Jesch, Chief Investment Officer at DWS, recently.

In company news, Sanofi has announced that it will acquire the outstanding shares of Provention Bio, at US$25.00 per share, representing a cash transaction valued at approximately US$2.9 billion.

Airbus Defence and Space has teamed up with Kythera Space Solutions for OneSat mission sizing software. The two groups will develop payload mission sizing software for Airbus' OneSat software-defined satellite (SDS).

Getlink, the parent company of Eurotunnel, announced on Monday the launch of a 'premium' subscription, dubbed 'First', which will enable customers to benefit from priority access to control lanes, boarding and customs clearance.


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