The recent collapse of Silicon Valley Bank (SVB) is causing ripples in world markets as investors brace for a bumpy ride this week. The collapse coincides with important economic data and policy meetings, including U.S. February inflation numbers, the U.K.'s budget, and the European Central Bank's interest-rate meeting.
Stock Market Volatility Rises
U.S. stock market volatility, as measured by the "fear index" VIX, has risen to its highest level since October, while the ICE BofA Move Index, a measure of volatility in the U.S. fixed income market, rose to its highest since mid-December. In the Middle East, stock markets ended lower on Sunday, with declines led by the Egyptian bourse.
Contagion to Other Assets
Stablecoin USD Coin lost its dollar peg and slumped to an all-time low on Saturday. However, it later recovered after Circle, the firm behind it, assured investors it would honor the peg despite exposure to Silicon Valley Bank.
Lingering Unease in the Banking Sector
U.S. Treasury Secretary Janet Yellen is working with regulators to respond to the implosion of SVB. Still, investors could go into Monday's trading day with little time to digest the latest developments. The collapse of SVB could have a domino effect on other U.S. regional banks and beyond.
Potential Hit to British Tech Sector and Chinese Funds and Startups
The British government is working to minimize the damage to the country's tech sector. At the same time, the failure of SVB has left many Chinese funds and tech startups in the lurch, as the bank was a key funding bridge for groups operating between China and the U.S. Advisory firm Rothschild & Co is exploring options for the subsidiary as insolvency looms.
Impact on Central Banks' Interest Rate Hikes
Investors are contemplating whether the turmoil in the banking sector could force central banks to re-think their plans for further interest rate hikes in the United States and Europe. The ECB will be vigilant to possible contagion risks and ensure liquidity is plentiful in the system. The U.K. finance minister's budget may be overshadowed by the SVB fallout in Britain, making the outlook for government bonds uncertain.
