Futures higher but World markets set for aftershocks as SVB collapse ripples out

Scott Murdoch and Dhara Ranasinghe

SYDNEY, (Reuters) – Markets are in for a rough ride as the fallout of Silicon Valley Bank’s collapse (SVB), the largest U.S. bank failure since 2008, coincides with important economic data and policy meetings.

S&P500 futures rose 1.4% following U.S. authorities ensuring that SVB customers will have access to their deposits beginning Monday.

“No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer,” A statement by the U.S. Treasury and Federal Reserve, as well as Federal Deposit Insurance Corp.

S&P500 futures opened 0.5% above their previous close, before dropping and then rallying after the statement was published.

The U.S. February inflation figures are due to be out Tuesday. They will be followed by the UK’s budget Wednesday and the European Central Bank’s interest rate meeting Thursday.

“There’s a rough ride ahead,” Pooja Kumra is a senior European and UK rate strategist at TD Securities, London.

The U.S. stock exchange volatility is measured by “fear index,” The VIX had already risen to its highest level since October. Meanwhile, the ICE BofA Move Index – a measure volatility in the U.S. fixed-income market – rose to its highest point since mid December.

The stock markets in the Middle East were lower on Sunday with the Egyptian bourse leading declines. Nearly all shares in Qatar were in negative territory including Qatar Islamic Bank which plunged 3.9%.

Another sign of contagion to assets was the USD Coin stablecoin (USDC) losing its dollar peg on Saturday. It plummeted to an all-time high. After Circle, the firm behind the stablecoin, assured investors that it would honor the peg despite being exposed to Silicon Valley Bank, most of the losses were recovered.

Unease regarding the banking sector will likely linger.

Investors will be rushing to get the latest news out of Monday’s trading session. SVB could have a domino impact on other U.S. banks and the world. On Friday, shares of smaller and regional banks in the United States were hard hit. S&P 500’s regional banks index lost 4.3% last week, making it 18% for the week, its worst week since 2009.

“Investors hate uncertainty and surprises, and this was a surprise that has created even more uncertainty,” Michael Farr, chief operating officer of Farr, Miller & Washington, Washington, D.C., said the above statement. “If there’s no news or no buyout between now and Monday, Wall St may be in for some volatility.”

POTENTIAL HEAVEN Britain’s government was trying to limit the impact of the disaster on its tech sector on Sunday. Prime Minister Rishi Panak said that the British government was looking for a solution to the potential damage to businesses resulting from SVB’s UK-based subsidiary failing.

According to two people familiar, Rothschild & Co has begun exploring alternatives for the subsidiary in the face of imminent insolvency. According to the BoE, it has requested a court order for the UK arm to be placed in an insolvency proceeding. The Financial Times reported Sunday that the SVB collapse has affected many Asian funds and start-ups. It was a crucial funding link for groups working between China and the U.S. SVB’s Chinese joint venture said Saturday that it has a solid corporate structure and an independent operated balance sheet. Investors are now pondering whether the turmoil in the banking industry could lead to central banks rethinking their policies after they have increased expectations of higher interest rates in Europe and the United States.

Investors will be focused on the ECB which appears set to increase its interest rates on Thursday. Policymakers are worried that persistent price pressures may result from a surprise rise in underlying inflation.

Marchel Alexandrovich (European economist, partner at Saltmarsh Economics) said that the ECB would be alert to possible contagion risks and ensure liquidity in the system.

Christine Lagarde, President ECB may take over if the markets have a tough week. “deliver a somewhat more cautious message,” He stated.

UK finance minister Jeremy Hunt might have his UK budget overshadowed due to the SVB crisis in Britain. Hunt is expected not to give away any giveaways that could lead to the destabilisation of sterling, stocks, and gilts, but will instead focus on maintaining public finances.

The outlook for government bonds is uncertain because of the uncertainty surrounding new public borrowing.

(Reporting by Dhararanasinghe, London; Additional reporting by Ira Iosebashvili and Scott Murdoch in Sydney. David Holmes, Diane Craft, and Lisa Shumaker edited.