European Markets Extend Weekly Losses On Banking System Worries

Bridgette Randall
17 Mar, 2023
Frankfurt

European markets closed down on the growing worries about the health of the banking system in the U.S. and Europe. 

Rapid rise in rates has created a new scenario not experienced for decades and investors are questioning how many banks are strong enough to digest accumulating losses in the assets held by financial institutions. 

With the rates advancing from negative to 3% and expected to reach as high as 5% before the end of 2023, large and small banks and insurance companies will be forced to deal with large losses in government securities. 

U.S. banks have accumulated unrealized losses of $620 billion, about 28% of its equity capital as of end of 2022. 

Rates are still rising in the U.S. and unrealized losses are expected to grow to as much as 50% of the equity capital, endangering most financial institutions. 

In Europe, banks turned lower on the worries of large losses at banks and looming economic slowdown also dented market sentiment. 

Investors were on defensive after the statistical office confirmed the elevated inflation in February. 

 

Euro Area Inflation Edged Slightly Lower In February 

The inflation rate in the Euro Area edged slightly lower in February from January but the rate was significantly higher than a year ago, the latest update from Eurostat showed. 

The Harmonized index of consumer prices or HICP on an annual basis increased 8.5% in February, slightly lower than 8.6% in January. The index increased 5.9% in the month a year ago. 

The final read on the inflation measure matched the preliminary estimate released on March 2. 

Core rate of inflation, which excludes energy, food, alcohol and tobacco products, accelerated to 5.6%, matching the flash estimate, from 5.3% in January.  

 

Indexes & Yields 

The DAX index fell 1.3% to 14,768.20, the CAC-40 index declined 1.5% to 6,925.40 and the FTSE 100 index dropped 1% to 7,335.40. 

For the week, the DAX declined 4.1%, the CAC-40 fell 4.3% and the FTSE 100 dropped 5.7%. 

The yield on 10-year German Bunds decreased to 2.09%, French bonds edged lower to 2.67%, the UK gilts to 3.24% and Italian bonds to 4.04%. 

The euro edged higher to $1.067, the British pound inched up to $1.21 and the Swiss franc closed at 92.75 cents. 

Brent crude oil declined $2.37 yo $72.30 a barrel and the Dutch TTF natural gas futures fell 2.3% to Є43.10 per MWh.   

 

Europe Movers 

Diploma PLC increased 3.5% to 2,727.12 pence after the company said it completed the sale of 9.3 million shares for 2,525 pence a share and raised £235 million. 

The company said it plans to use proceeds to refinance the acquisition of Tennessee Industrial  Electronics, LLC, a value-add distributor of aftermarket parts and  repair services provider into the fast-growing US industrial automation end market, 

The company plans to use some of the proceeds to fund its "strong M&A pipeline to  accelerate future organic growth."

The purchase price of £76 million represents a multiple of 9.8 times operating earnings and the acquisition is expected  to deliver revenue of £31 million. 

Bodycote Plc increased 5.5% to 613.30 pence after the provider of thermal processing service and heat treatment reported revenue and earnings rose in in the full-year. 

Revenue in the full-year 2022 increased 17.3% to £743.6 million from £615.8 million and net income rose to £74.3 million from £60.0 million and earnings per share to 38.6 pence from 31.2 pence a year ago.