March 31, 2023

 European markets decline; banks continue to lose money; Deutsche Bank down 12%

As investors evaluated a week of rate rises by central banks and the most recent information from the banking industry, European stock indexes fell on Friday.

Losses were led by banks, just like on Thursday. Despite assurances from officials that the system is stable following recent turmoil, the sector fell 4.7%. This week, Citigroup downgraded the European banking industry from “overweight” to “neutral,” citing the consequences of ongoing monetary policy tightening.

Following a rise in the price of its credit default swaps, a type of insurance for bondholders, Deutsche Bank’s stock fell 12.0%, adding to a 3.2% decline on Thursday.

Stocks in the financial sector lost 1.8%, those in the mining sector declined 2.7%, and those in the oil and gas sector fell 3.5%.

After the UK’s inflation rate saw an unexpected increase, the Bank of England increased its base rate by 25 basis points to 4.25% on Thursday. This decision was priced in by the markets.

The benchmark interest rate set by the Swiss central bank was increased by 50 basis points. Both decisions were made after the U.S. Federal Reserve raised interest rates by 25 basis points.

In the morning trading, Deutsche Bank suffered the worst losses, plunging over 10% as a result of a rise in credit default swaps.

Credit default swaps, which protect bondholders against a company’s default, increased to 173 basis points on Thursday night from 142 basis points the day before.

The bank’s additional tier one (AT1) bonds experienced a steep decline as well.

Early Friday trading saw a decline in European markets, with the Stoxx 600 index plunging 1.2%.

The FTSE 100 in the UK, the CAC 40 in France, and the DAX in Germany were all down by around 1.4%.

Among the sectors, banks fell 3.2% as investors lost confidence in the sector’s soundness as a result of a substantial increase in Deutsche Bank’s default insurance premiums. At 9:50 CET, the German bank was down 9%.

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