Throughout economic history, interest rate tightening cycles tend to end with a bang, not a whimper. Whether the multiple bank failures in the past two weeks were loud enough is moot.
US Federal Reserve chair Jay Powell raised rates by a quarter rather than a half percentage point on Wednesday. The Bank of England increased by the same amount on Thursday. The question is whether any more increases will follow. European Central Bank president Christine Lagarde, who defended rate rise policy last week, softened her tone this week.
Though European bank shares have dropped recently, they are up 7 per cent in the year to date, helped by rising rates and the boost to their net interest income (NII). The Stoxx 600 European bank index has royally outperformed the KBW US bank index.