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regular-article-logo Thursday, 13 June 2024

Banking turmoil spooks investors

Deutsche Bank is now in the news as its shares crashed more than 11 per cent on Friday following a steep rise in financial derivatives called credit default swaps (CDS) to a four-year high

Our Bureau Calcutta, Mumbai Published 25.03.23, 12:47 AM
Representational image.

Representational image. File Photo

The turmoil in the global banking sector and fears of a recession in the US ruined investor sentiment on Friday, resulting in the benchmark Sensex tumbling more than 398 points.

Though there has been no big negative news after the collapse of Silicon Valley Bank (SVB) and the controversial terms of the Credit Suisse rescue, riskier assets continue to be under the grip of contagion fears which have also spread to Europe.

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Deutsche Bank, the largest German lender, is now in the news as its shares crashed more than 11 per cent on Friday following a steep rise in financial derivatives called credit default swaps (CDS) to a four-year high. CDS insures bondholders against the bank defaulting on its debts.

The bearish mood was witnessed in other banking counters as well both in the US and Europe that included frontliners such as JP Morgan Chase and Wells Fargo and regional lenders such as First Republic Bank. Fears of an economic slowdown because of central banks hiking interest rates also worried investors.

With global cues offering little support, the 30-share Sensex opened lower at 57890.66 and hit the day’s low of 57422.98 — a drop of 500 points, after which it settled 398.19 points or 0.69 per cent lower at 57527.10 with 24 of its constituents posting losses.

Gold prices soar

Gold buyers may stay away from the market as the price of the yellow metal soars. In Calcutta, pure gold stood at Rs 60,100 per 10 grams on Friday, up from Rs 59,900 on Thursday.

The gold spot rate from the World Gold Council shows that in the last six months, prices have increased from $1,643.35 per ounce (September 26, 2022) to $1,977.95 per ounce (March 23, 2023). Prices were hovering at $1,300 per ounce in later days of March 2019.

“There will be a headwind. Consumers will continue to wait and watch to see if the price increase is a blip or not. But with gold prices at Rs 60,000, I must say it is becoming a little beyond the reach of the common man,” Somasundarm P.R., regional CEO — India, World Gold Council said on Friday. He was speaking on the sidelines of an Indian Chamber of Commerce-event. “Gold is always a safe haven whenever there is uncertainty.

In earlier times we have seen that when the gold prices went up it was generally followed by a correction. But in the last five years, once it increases, it reaches a plateau and again jumps. This is indicative of the uncertainty in the global market,” said Vinod Balamwa, chairman, ICC expert committee on jewellery and lifestyle.

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