The financial world is under high tension today because of the threat of a European banking crisis due to concerns about the beleaguered Swiss bank Credit Suisse. The support to Credit Suisse is expected to bring relief to European stock markets. The ECB will issue an interest rate decision later in the day.
On Wednesday, the banks and insurers on the European stock markets fell sharply due to concerns about Credit Suisse, which saw almost a quarter of its market value evaporate. The Swiss central bank has now promised to support the second largest lender in the country and Credit Suisse announced last night that it would borrow 50 billion Swiss francs (more than 50 billion euros) from the central bank to strengthen its financial position.
The support for Credit Suisse will probably provide relief on the European stock markets on Thursday morning, with banks in particular appearing to be recovering strongly from the sell-off the day before. All attention now turns to the response of the European Central Bank (ECB) to the recent turmoil in the banking sector.
LOOK. The share of the major Swiss bank Crédit Suisse is in free fall
ECB interest rate decision
The ECB will announce its interest rate decision later in the day. It was widely expected that the central bank would raise interest rates in the eurozone again by half a percentage point to combat stubborn inflation. Due to the unrest in the banking sector, the ECB may decide to lower interest rates by a quarter of a percentage point. Investors are therefore particularly curious about ECB President Christine Lagarde’s comments on the current turmoil in the banking sector and its possible consequences for future interest rate hikes.
Asian stock markets did fall on Thursday. The Nikkei in Tokyo ended 0.8 percent down due to price losses at Japanese banks. The Hang Seng index in Hong Kong lost 1.8 percent in the meantime.
Banks Westpac and ANZ also lost up to 2.5 percent in value in Sydney. The main stock market index in the Australian city lost 1.5 percent. Investors also digested the news that unemployment in Australia has fallen again, leaving the labor market very tight. That could also affect the interest rate policy of the country’s central bank, which tries to contain inflation with rate hikes.
The euro was worth $1.0606 against $1.0580 the day before. Oil prices rebounded after sharp falls on Wednesday. A barrel of US oil cost 0.7 percent more at $ 68.07. Brent oil became 0.8 percent more expensive at $ 74.29 per barrel.
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