March 13, 2023

“The US Dollar began the week with a significant decrease in value as investors reconsidered the Federal Reserve’s future policy actions following the failure of Silicon Valley Bank. The 10-year US Treasury bond yield dropped by 0.7% to less than 3.7%, having experienced a 6% decline on Friday, and The US Dollar Index remains significantly low in value early this morning. Today’s economic calendar does not include any significant macroeconomic data releases.

Tim Hallinan – Trading Director

Main Headlines

US authorities have introduced emergency measures to prevent a banking crisis after the failure of Silicon Valley Bank threatened to cause broader financial problems. The bank’s customers will have access to all their deposits from today, and regulators have set up a new facility to provide banks with emergency funds. The Federal Reserve has also made it easier for banks to borrow from it during emergencies. However, fears about broader banking risks persist and have raised doubts about the Fed’s aggressive interest rate hike plan.

HSBC has acquired the UK arm of Silicon Valley Bank for a nominal fee of £1, saving a key lender for technology start-ups in the UK and mitigating the effects of the largest bank collapse since the financial crash. The acquisition followed US authorities’ efforts to protect deposits and prevent the spread of the collapse of the parent bank. The acquisition by HSBC, which has $2.9 trillion in assets, brings an end to intense weekend negotiations among regulators, the government, and prospective buyers.

GBP

Sterling is well bid against most major currencies overnight. UK Chancellor of the Exchequer Jeremy Hunt announced that the UK arm of Silicon Valley Bank had been privately sold to HSBC with the support of the Bank of England. This move protects customer deposits without taxpayer support, according to Hunt. The Bank of England added that the wider UK banking system remains well-capitalized and secure. Hunt expressed satisfaction with the quick resolution and reassured SVB UK customers that HSBC’s strength, safety, and security would protect them.

EUR

Euro is stronger against the dollar and weaker against sterling this morning. In early morning trading on Switzerland’s stock exchange, Credit Suisse’s shares plummeted over 8%, reaching a new record low. The shares were trading at 2.29 Swiss francs ($2.50) per share, down from the previous low of 2.41 francs per share reached on Friday. As Switzerland’s second-largest bank, Credit Suisse has been struggling to recover from several scandals, and as a result, has begun a significant overhaul of its business. The bank is cutting costs and jobs to revive its fortunes, including the creation of a separate business for its investment bank under the CS First Boston brand.

USD

The dollar is weaker than most major currencies in the early morning trade. US President Joe Biden will address the banking crisis that forced regulators to implement emergency measures after the failures of Silicon Valley Bank and Signature Bank posed systemic risks. Biden suggested new regulations for large banks after the biggest bank failure in the US since the 2008 financial crisis. However, a divided Congress is unlikely to approve stricter rules. His economic team collaborated with regulators to develop the measures, which include deposit guarantees for both banks, the establishment of an emergency fund facility, and easier bank borrowing from the Federal Reserve.

Markets

European markets fell this morning as investors focused on the fallout from Silicon Valley Bank’s collapse. The pan-European Stoxx 600 index decreased by 2.1%, with all sectors and significant stock exchanges in negative territory. Banks, insurance, and financial services suffered the most significant losses, with declines of 4.3%, 3.1%, and 2.8%, respectively. In contrast, US stock futures rose after regulators announced their plan to support SVB depositors and provide additional funding to other banks.

Main Economic Data/Central Banks/Government (All Times CET)

8:00 a.m.: Turkey Jan. Current Account
8:00 a.m.: Romania Feb. CPI
11:00 a.m.: Greece Feb. CPI
2:30 p.m.: Ukraine 4Q GDP
7:05 p.m.: BOE’s Dhingra speaks
Joe Biden meets Rishi Sunak and Anthony Albanese in San Diego

Corporate Events

Earnings include Porsche, GitLab, MTN

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