US indices fell sharply, by 1.85% for example for the S&P500. US debt yields have also fallen sharply. The culprit is called SVB Financial. SVB stands for Silicon Valley Bank, an institution known for financing technological and innovative companies in several sectors. The bank's share price fell yesterday from 267 to 106 USD, a plunge of 60%. Thus, the capitalization has melted from 15.8 to 6.3 billion dollars in a few hours. Without going into too much detail, SVB is in a delicate position which forces it to raise funds. Above all, to compensate for the drop in its deposits, it had to sell a large portfolio of bonds totaling $21 billion, but with a loss of $1.8 billion. Investors' panic-stricken reaction during yesterday's session illustrates the market's confidence in the institution, especially since it is the second player in this financial-technological universe to be brought to its knees after Silvergate a few days earlier.

The collapse of SVB has dragged some much more reputable institutions, and of a completely different caliber, into its fall: -16% for First Republic, -13% for Charles Schwab, -6% for Wells Fargo and Bank of America or -5% for JPMorgan Chase. This outcry can be explained by the causes of the Californian bank's worries: the valuation of its bond portfolio. The rapid rise in interest rates has indeed eroded the value of this portfolio (remember that the value of a bond falls when its yield rises), creating latent losses that are often considerable. This is a subject that has been recurring for several months, but which tends to be swept under the carpet. By exposing its fragility, SVB has lifted the veil. Yesterday's panic (-4% for the Wall Street financial sector index) can be explained by a combination of factors, which I will summarize in a somewhat simplistic way:

  • The surprise effect: banks had generally been viewed by investors for some time as beneficiaries of rising rates, at least to some degree:
  • The "truth is out there" effect: We’re not always told about the fragility of hidden parts of finance. This theme is always present in times of economic uncertainty.
  • The psychological effect: SVB's stock market fall is quite spectacular.
  • The deja-vu effect: The 2008 financial crisis and its domino effects are still fresh in people's minds.

Some commentators already see this as the beginning of a crisis, not just in private equity but across the whole alternative asset sector, with dramatic consequences for the whole financial sector. Is SVB Financial a black swan? For those who don't know, a black swan in finance is a surprise event that has potentially severe consequences and sometimes starts a financial crisis.

This news has overshadowed the only appointment that investors had planned to honor today, their meeting with the February employment data in the United States. This statistic was supposed to determine, at least in the short term, whether the Fed would raise rates by 50 basis points at its March 22 meeting, or whether it would be able to settle for a lower rate hike of 25 basis points. The debate is not so simple now.

Before the release of the employment data, the S&P 500 was down 1.8%, the Dow Jones by 1.6% and the Nasdaq 100 was flat. But then, after the data was published, all three indices shoot up. The S&P was up 0.4% and the Nasdaq 0.6% 5 mn after, while the Dow Jones was flat. The reason ? While job creations were higher than expected, the unemployment rate came in at 3.6% instead of the expected 3.4%. Hourly wage is also up by 0.2% instead of 0.3% expected. We'll see if these gains last the whole session...

 

Economic highlights of the day:

Everything will revolve around US employment at 8.30 am. All the agenda is here .

The dollar is trading at EUR 0.9444 and GBP 0.8340. The ounce of gold is up to 1835 USD. Oil remains under pressure, with North Sea Brent crude at USD 80.94 a barrel and US WTI light crude at USD 75.07. The yield on 10-year US debt falls to 3.82%. Bitcoin is down below USD 20,000.

 

In corporate news:

* SVB Financial Group, which lost 60% of its value on Thursday, was still falling more than 45% in pre-market trading, after its subsidiary Silicon Valley Bank made a surprise fundraising in the face of liquidity risk.

* Oracle reported slightly lower-than-expected quarterly revenue Thursday night, but the company said it is confident about demand for cloud computing following its recent acquisition of Cerner. The stock is down 4.7% in pre-market trading.

* GAP - GAP shares fell 6.7% in premarket trading after the company reported a wider-than-expected quarterly loss, while the company's quarterly revenue also fell below consensus for the first time in over a year.

* Tesla - The U.S. automaker has brought in Asian partners to help reduce the cost of batteries and increase their power, according to sources close to the matter.

* Boeing - The U.S. automaker announced Friday that it plans to convert 737 passenger jets into freighters through a dedicated plant in India to meet regional demand.

* General Electric is working to resolve longevity issues with its LEAP engines and changes will be made next year, Karl Sheldon, head of the group's aerospace division, said Thursday night.

* Meta Platforms is considering creating a decentralized, autonomous social network that could compete directly with Twitter, a company spokesman said Friday.

 

Analyst recommendations:

  • Admiral: Deutsche Bank downgrades from buy to hold targeting GBp 2150.
  • Alaska Air: Barclays upgrades to overweight from equal-weight. PT up 30% to $62.
  • Allegiant Travel: Barclays downgrades to equal-weight from overweight. PT up 4.2% to $105.
  • Bausch + Lomb: Needham & Co initiates coverage with Hold rating.
  • KeyCorp: Piper Sandler upgrades to neutral from underweight. PT up 2.7% to $16.50.
  • Segro: Barclays downgrades to equal-weight from overweight. PT up 2.7% to 800 pence.
  • SouthWest Airlines: Barclays downgrades to equal-weight from overweight. PT up 15% to $38.
  • Stride: Morgan Stanley downgrades to equal-weight from overweight. PT up 6.7% to $46.
  • SVB Financial: Truist Securities downgrades to hold from buy. PT down 5.7% to $100.
  • United Airlines: Barclays upgrades to overweight from equal-weight. PT up 53% to $80.
  • Volution: Jefferies remains Buy with a price target raised from 470 to 490 GBp.