Market Watch: March 17

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North American markets dropped on Wednesday due to Credit Suisse’s capital denial from its largest shareholder but pared losses when Swiss authorities started working on stabilizing the bank. The Dow lost 281 points by the close, while the S&P 500 dropped 27 and Nasdaq rose 6 points, respectively. In Canada, the TSX saw a 315-point fall led by the weakness in the Energy sector.

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On Thursday, North American equity markets moved higher as investor sentiment settled after the Swiss National Bank extended a loan to Credit Suisse Group AG and the U.S. big banks discussed boosting First Republic Bank. By the end of trading, the Dow climbed 372 points, while the S&P 500 and Nasdaq gained 68 and 283 points, respectively. In Canada, the TSX rose by 160 points.

North American Indexes recover losses

For the four trading days covered in this report, the Dow gained 337 points to close at 32,247, the S&P 500 gained 99 points to settle at 3960, and the tech-heavy Nasdaq gained 578 points to close at 11,717. In Canada, the TSX dropped 236 points to end at 19,539.

Strategy

Stress in the financial sector complicates matters for policymakers

The recent developments surrounding Credit Suisse have put the European Central Bank (ECB) in a challenging position. While the Single Supervisory Mechanism (SSM) has deemed the Swiss bank an “isolated” event for the European banking system, the uncertainty it creates threatens financial stability. While the ECB is still in the midst of its fight against inflation, it may need to prioritize financial stability given the events surrounding Credit Suisse and the broader financial sector. In the meantime, the recent selloff in financial stocks has shifted the focus of European equity investors towards recession risk and the potential impact of financial turmoil on the real economy, leading to more volatile markets. Banks’ share-price corrections are also being driven by suggestions that consensus 2023 net interest income may now be overly optimistic if the ECB interest rate peaks at just 3 per cent. Furthermore, the risk of earnings downgrades for many financials is increasing due to the selloff in Credit Suisse shares. Meanwhile, the Europe Financial Conditions Index has fallen back to last October’s lows, putting more pressure on the economy.

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