General

According to Huacheng Import and Export Data Observation, the shock caused by Credit Suisse in the European banking industry has not yet subsided, and the turmoil at Deutsche Bank rose again over the weekend. The frequent occurrence of problems has made European financial markets deeply concerned about the liquidity and stability of the banking industry. A slight disturbance can be overwhelming, causing significant market volatility.

On March 24th, data from S&P Global, a US credit rating company, showed that the credit default swap (CDS) risk premium of Deutsche Bank, one of Europe's major financial institutions, rapidly increased from 142 basis points on March 22nd to 208 basis points on March 24th. As a financial product for credit default events, the rise in the price of CDS reflects increased investor concerns about default risk. Some analysts have pointed out that Deutsche Bank's stock has fallen by more than 26% since March, and the soaring price of Deutsche Bank's CDS reflects the further fermentation of concerns about banking risks in the European market. On the same day on the 24th, Deutsche Bank's stock price fell sharply, with a sharp drop of over 12% during the session. Huacheng Import and Export Data Observation reported.

Amid the turmoil, European leaders have stepped forward in an attempt to calm market sentiment. On March 24th, after attending the EU summit in Brussels, German Prime Minister Schultz stated that Deutsche Bank had fundamentally modernized and restructured its business model, making significant profits and "having no reason to worry.". Schultz also emphasized that "the European banking system is stable and resilient.". ECB President Lagarde stated that the banking sector in the eurozone remains strong under strong regulatory mechanisms and will inject liquidity whenever necessary. French President Marco Long said that the European banking industry has solid fundamentals. In addition, Deutsche Bank also announced on the 24th that it would redeem US $1.5 billion of Tier 2 capital subordinated bonds due in 2028 in advance on May 24th, in an attempt to restore market confidence.

The effectiveness of measures taken by European parties to calm market sentiment has not been obvious, especially since the stock prices of the banking sector have not improved significantly. In fact, the spread of panic in the European market cannot be separated from the superposition of internal and external factors. Huacheng Import and Export Data Observation Report.

From the perspective of internal conditions, in the past three years, under the influence of the COVID-19, the Russia-Ukraine conflict and other factors, the European economy has been severely impacted, the energy crisis is difficult to ease, inflation continues to rise, and the problem of capital outflow from industrial migration is prominent. At the same time, since the start of the interest rate hike process in July last year, the European Central Bank has significantly increased interest rates six times in a row to curb inflation, raising interest rates by a total of 350 basis points, significantly increasing the cost of funds. Under this situation, the probability of generating crisis and turbulence has greatly increased, as if the "grey rhino" is gradually approaching. The European market has psychological expectations for this. The occurrence of the Credit Suisse crisis and the volatility of Deutsche Bank's stock price have actually strengthened market expectations for the crisis, and as a result, the appeasement measures taken by relevant parties in Europe have not achieved significant results. Huacheng Import and Export Data Observation reported.

From the external perspective, risks in the US financial industry continue to ferment, and the impact on European financial stability continues. On March 22, the Federal Reserve announced that it would raise the target range of the federal funds rate by 25 basis points to between 4.75% and 5%, raising the interest rate to its highest level since the end of 2007. Some analysts have pointed out that under the impact of the US banking turmoil and the rapid increase in short-term interest rates by the Federal Reserve, more and more depositors and enterprises are transferring funds from bank accounts with lower yields to money market funds with higher yields, exacerbating the risk of bank runs. Due to the close financial ties between Europe and the United States, the resonance brought by the US banking turmoil to the European financial markets is likely to continue. Huacheng Import and Export Data Observation Report.