March 16, 2023

“After yesterday’s flight to safety amid Credit Suisse collapse fears, market sentiment improves this morning as concerns ease. Later today, the European Central Bank is set to disclose its policy decisions, while the US economic calendar will showcase February Housing Starts, Building Permits, and the Federal Reserve Bank of Philadelphia’s Manufacturing Survey for March.”

Sam Cornford, Partner – Head of Trading

Main Headlines

The Federal Deposit Insurance Corp (FDIC) restored $40 billion to the US Treasury General Account this Tuesday, after initially withdrawing it on Friday to deal with the failure of Silicon Valley Bank. In response to the crisis, the Treasury, FDIC, and Federal Reserve announced deposit guarantees for both insured and uninsured deposits at the institution and New York’s Signature Bank to reinforce confidence in the banking system. The Federal Reserve also opened a new facility to provide emergency funds to the banks.

Amid an ongoing crisis, Credit Suisse has sought assistance from its central bank to alleviate concerns about its financial stability. In a recent statement, the bank revealed it would acquire up to 50 billion Swiss francs (£44 billion) from the Swiss National Bank, describing the move as a “resolute step” to fortify its liquidity. Yesterday, Credit Suisse faced turmoil in the banking sector as its shares plummeted by 30% at one point, following the largest shareholder’s decision not to increase their stake in the institution. CEO Ulrich Koerner emphasized that the bolstered liquidity would aid Credit Suisse’s fundamental operations and clientele.

GBP

Sterling is stronger against the dollar and weaker against euro this morning. UK Chancellor Jeremy Hunt presented a budget statement yesterday, attempting to demonstrate the improving state of Britain’s economy. The budget included £20 billion ($24.1 billion) in spending for energy subsidies, childcare, and business investment incentives. However, it remains uncertain whether this will boost the Conservative Party’s prospects before the next election, as the opposition Labour Party continues to dominate opinion polls.

EUR

Euro is well bid against most major currencies overnight. Anticipation for a substantial European Central Bank (ECB) interest rate hike this week diminished yesterday, as the turmoil in Credit Suisse shares raised concerns about Europe’s banking sector. Money market pricing currently suggests a less than 20% probability of a 50 basis point rate hike at today’s scheduled ECB meeting, a stark contrast to the 90% chance projected earlier.

USD

The dollar is weaker than most major currencies in the early morning trade. According to Wall Street analysts, the swift collapse of SVB Financial Group may increase pressure on small and mid-sized US banks, potentially slowing the economy and raising the likelihood of a recession this year. J.P.Morgan suggests that regulatory scrutiny on smaller banks and deposit runs could limit loan growth, resulting in a GDP reduction of 0.5% to 1.0% over the next one to two years.

Markets

European markets showed signs of recovery this morning, as regional investors welcomed the Swiss National Bank’s liquidity backstop for Credit Suisse. Credit Suisse shares rebounded, surging up to 30% in early trade before stabilizing at a 23% gain. The pan-European Stoxx 600 index rose by 0.5% in morning trading, with most sectors and major bourses opening positively. Bank stocks led the rally, initially increasing by 2.6% before settling at 1.7%, while financial services gained 1.8%. However, health care stocks moved into negative territory.

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

8:00 a.m.: Norway Jan. GDP
9:00 a.m.: Spain 4Q Labor Costs
9:10 a.m.: Riksbank’s Floden speaks
10:00 a.m.: Italy Feb. CPI
12:00 p.m.: Ireland Feb. CPI
12:00 p.m.: UK OBR briefs on budget
1:00 p.m.: Ukraine Key Rate
2:00 p.m.: Poland Jan. Trade Balance
2:15 p.m.: ECB Rate Decision
2:45 p.m.: ECB’s Lagarde holds press conference

Corporate Events

Earnings include Enel

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