The most important ingredient for a global financial crisis is distrust between banks. When the interbank market stops working, the situation is escalating. This is not yet the case. The most important view in the markets is therefore less on equity and bond prices than on interbank interest rates such as Libor in America and Euribor in Europe. Here it says from the market: Everything in the green area. Market works. The interest rate development is inconspicuous, as on Thursday and Friday last week.

Daniel Mohr

Editor in business.

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

Panic has therefore not yet broken out on the bad guys, but a higher nervousness. The stock market 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 dampened by concerns about the state of the banking sector. Until Thursday, interest rate hikes were mainly considered positive for banks, which their latest annual reports also confirmed. It is now clear that higher interest rates also have disadvantages, 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. To what extent this is the case remains hidden. Many investors do not like such uncertainties.

Commerzbank and Credit Suisse particularly affected

On the German stock market, the Dax, led by financial stocks, slipped by 3 percent to less than 15,000 points on Monday, but this is still significantly more than at the beginning of the year with just under 14,000 points. Commerzbank shares were the weakest with discounts of 15 percent.

Only Credit Suisse suffered similar losses. The price of hedges against defaults on the bank's bonds (Credit Default Swaps, CSD) climbed to a record level of 451 basis points on Monday. Investors must therefore pay 451,000 euros to insure bonds of ten million euros. This crisis indicator remains inconspicuous for other banks in Europe.

Nevertheless, bank shares 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 losses of 6 to 8 percent. The American stock market was much more relaxed: Dow Jones and Nasdaq opened trading on Monday in the plus, larger bank shares fell only slightly in price.

However, bonds considered safe were in demand. Shorter-dated German government bonds soared in price. The yield on securities with a two-year maturity 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 had risen 17 points from its relaxed level on Friday to more than 20, reflecting an increased alert, and rose to 26 points on Monday. At the outbreak of Corona 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 bet on a change in monetary policy, as the consequences of liquidity withdrawal and capital prices for the economy are now becoming apparent. "The weakest link is falling," said Benjamin Bente, managing director of fund company Vates Invest. However, since more links are unlikely to fall, many observers have now revised 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 of DZ Bank considers the current market reactions to be exaggerated. "This event brings back memories of the financial crisis and scares off investors. With enough foresight, this could even be a good time for share purchases," says Streibel. "The framework conditions for equities have improved in recent months, the profitability of companies is very high, also thanks to the economic recovery in China, the reporting season confirms this." Streibel will therefore increase its price targets for the European stock indices in the coming days. "We don't see Lehman 2.0, but rather an Evergrande 2.0, when there was even a brief excitement after the imbalance of the Chinese real estate group." Streibel refers above all to the money market: "Unlike in 2008, we currently see no stress on the interbank market."