Futures Rally Fizzles As SNB Bailout Underwhelms, Banking Fears Linger, ECB Looms

March 19, 2023

Well, we warned last night that the euphoria from the “rescue” of Credit Suisse in the form of a CHF50 billion (priming DIP) loan from the ECB would not last long, to wit:

… don’t hold your breath for some breathtaking surge: once the market sees though this rescue for what it is – yet another temporary stop gap measure – it will demand much more, especially after the ECB hikes rates tomorrow which this “band-aid bailout” will allow the Central Bank to do, in the process guaranteeing an even bigger bailout down the line.

It didn’t take long for the market to do just that, because after spiking early at the open with a record 40% gain, Credit Suisse has seen its gains cut in half after banks such as JPM agreed with us: “the SNB liquidity support indicated last night as not enough; CS’s situation “is about ongoing market confidence issues with its IB strategy and ongoing franchise erosion”.

Meanwhile, the bank’s CDS have barely budged, which means that the market is content that the bank has bought some time but the endgame still remains the same.

And so, after opening as much as 2% higher, Europe’s Stoxx 600 has lost all gains, European banks are flat after having risen as much as 3.7% in early trading, and US S&P 500 futures are down 0.2% after trading well in the green for much of the overnight session, amid a renewed selloff in some regional-bank shares, while a looming ECB rate hike (preview here) will only further tighten financial conditions and add to the Credit Suisse instability. The Cboe Volatility Index edged up to 27, well above its long-term average of 20, 10y Yields dropps to 3.43% after rising as high as 3.52% overnight, while the dollar dipped, and gold and bitcoin rose.

In premarket trading, First Republic Bank plunged, dragging down some its regional peers, after saying it’s considering options including a sale. Among other notable moves in premarket trading, Baidu Inc. slumped after the Chinese tech firm unveiled a ChatGPT-like AI chatbot in a pre-recorded video that underwhelmed investors hoping for a stronger and live demonstration. Adobe shares rose 4.9% after the software company boosted its full-year earnings forecast. Analysts were positive about the outlook given the tough macro environment for tech, but they noted that the Figma deal will be an overhang for the stock. Here are other notable premarket movers:

Amyris (AMRS) shares are down 17% after the specialty chemical company gave an outlook and reported fourth-quarter revenue that missed expectations. Piper Sandler writes that the report highlights ongoing challenges for the company.
Block Inc. (SQ) shares are up 2.6% after Mizuho upgraded the digital-payments company to buy from neutral.
First Republic Bank (FRC) shares are slumping in premarket trading on Thursday following a report that the company is weighing options that include a sale. Shares decline 27%.
Foot Locker (FL) is raised to outperform from market perform at Telsey with the sneaker retailer’s shares seen at an attractive level given its growth potential. Shares gain 1.7%.
Progressive Corp. (PGR) gains 0.5% after Wells Fargo double upgrades to overweight from underweight, writing that the insurer has “turned the corner on growth.”
Proterra (PTRA) shares slumped 16% after the electric bus and equipment maker’s results and earnings fell short of expectations, sparking worries over supply chain snags and costs associated with its Powered 1 factory, with Truist analysts also flagging Proterra’s disclosed covenant challenge.
Social media stocks like Snap (SNAP) and Meta (META) were trading higher in US premarket trading as TikTok’s leadership discusses the possibility of separating from its Chinese parent company ByteDance to help address concerns about national security risks. Snap shares are up 7%. Meta shares gain 1.9%.
UiPath (PATH) rose as much as 17% after the software company gave a better-than-expected full-year forecast. Some analysts noted that annualized recurring revenue (ARR) was particularly strong, and Canaccord Genuity raised its recommendation on the stock to buy from hold.

The banking sector turmoil, which kicked off last week after the failure of Silicon Valley Bank and Signature Bank, has all but erased the S&P 500’s gains so far this year. All eyes are now on the Federal Reserve’s policy meeting next week for clues on whether the central bank will push ahead with previous signals on keeping rates higher for longer or take steps to tone down its hawkish policy.

Mark Haefele, chief investment officer at UBS Global Wealth Management, said that although tight funding conditions could pose a challenge for some individual banks, overall “fears about bank solvency are overdone and most banks retain strong liquidity positions.”

“Recent action by the Federal Deposit Insurance Corporation to guarantee deposits and by the Fed to lend to banks that require funds should solve liquidity-related risks for US banks as well as for US branches of foreign banks,” Haefele wrote in a note to clients. Still, the strategist said he preferred European lenders to US peers.

“ECB policy makers will be grappling with the risk that sticking to the original plan to hike 50 basis points could further undermine confidence,” said Sarah Hewin, head of Europe and Americas research at Standard Chartered Plc. “Not tightening policy could be read by the market as an admission of underlying vulnerabilities.”

“Uncertainty is very high at the moment and there’s a lot of selling because of the shock from higher volatility and other factors,” said Ulrich Urbahn, head of multi-asset strategy and research at Berenberg. “The change in focus from inflation to growth concerns and financial stability has reversed the stock-bond correlation again. A stronger relief rally is not likely to happen before the Fed meeting.”

European stocks erased an early advance and a rally in bank stocks petered out, even as Credit Suisse jumped the most in history at the open after the embattled Swiss lender arranged to borrow as much as 50 billion francs ($54 billion) from a Swiss National Bank liquidity facility; however it has since seen its gain cut in half. Traders are also bracing for the European Central Bank rate decision later Thursday, with more investors now positioning for a 25 basis point move after earlier expectations for double that. European banks are flat after having risen as much as 3.7% in early trading; the Stoxx Banks Index is +0.1% and trimmed year-to-date gains to 2.2%. Here are the most notable European movers:

Credit Suisse shares jump as much as 40%, before paring gains, after the lender tapped the Swiss National Bank for as much as 50 billion francs and offered to repurchase debt. Other European lenders also rebound from Wednesday’s drop, following Credit Suisse. Traders are now looking ahead to today’s ECB decision.
Rentokil shares jump as much as 8.7% after the pest control group’s results topped expectations and it raised its synergy guidance from the acquisition of rival Terminix.
Vitesco shares rise as much as 5.4% after HSBC upgrades the auto- electrification tech supplier to buy from hold on the potential for a re-rating.
TotalEnergies shares rise as much as 2.6% after Couche-Tard agreed to buy a portfolio of gasoline stations in Europe from the French oil firm for €3.1 billion.
MorphoSys gains as much as 13% after the German biotech beat 4Q consensus estimates, with Morgan Stanley noting the beat was supported by a $23 million payment from Novartis.
Deliveroo shares drop as much as 4% after the food delivery firm predicted gross transaction value to increase by low- to mid-single-digit this year, a slowdown from last year.
Burford Capital sinks as much as 23% after the litigation financing group said Wednesday that it’s been talking to the US SEC about the fair value of legal finance assets.
Grand City Properties shares fall as much as 14%, the mosts intraday on record, after the real estate company decided not to recommend a dividend payment for 2022.

Earlier in the session, stocks fell across the Asia Pacific region as concerns over Credit Suisse triggered a renewed selloff in financial stocks, while benchmarks in India and the Philippines flirted with corrections. The MSCI Asia Pacific Index dropped as much as 1.3% in a broad selloff, with financials among the biggest drags. Key gauges fell more than 1% in Hong Kong, Japan and Australia. The Philippine stock gauge narrowly avoided a 10% decline from a recent high, while India stocks reversed an initial drop. Banks resumed declines after Wednesday’s rebound as Credit Suisse’s 24% plunge overnight compounded concerns sparked by the sudden collapse of Silicon Valley Bank. Energy and materials were the biggest sectoral decliners in Asia on Thursday.

“We’ve been paring down our Asia equity exposure due to contagion risks,” even though the Asian banking system is fundamentally sound, said Kerry Goh, chief investment officer at Kamet Capital Partners. “We’ve been asking clients to buy Treasuries and money-market funds.” The MSCI Asia gauge is down more than 9% from a peak in late January, as failures in the US banking system have added to worries on rising interest rates and recession risks. Traders will turn to the European Central Bank’s policy decision and commentary later Thursday for further cues. Heightened market volatility from recent developments and an uncertain outlook on Fed rates could fuel demand for hedging solutions in Asia Pacific across various asset classes, Bloomberg Intelligence analyst Sharnie Wong wrote in a note.

Japanese equities fell, following US peers lower, as turmoil at Credit Suisse exacerbated concerns over financials and the yen strengthened. The Topix fell 1.2% to close at 1,937.10, while the Nikkei declined 0.8% to 27,010.61. The yen extended gains to a second day, to around 132.8 per dollar. Mitsui & Co. contributed the most to the Topix decline, decreasing 5%. Out of 2,159 stocks in the index, 276 rose and 1,833 fell, while 50 were unchanged. “The collapse of SVB and the large share price drop of Credit Suisse Group have heightened the sense of uncertainty in the banking sector and made investors turn risk averse,” said Tomo Kinoshita, a strategist at Invesco Asset Management Japan.

Australian stocks also declined; the S&P/ASX 200 index fell 1.5% to close at 6,965.50, dragged by weakness in mining stocks and banks. Equities dropped across the Asia Pacific region as concerns over Credit Suisse triggered a renewed selloff in financial stocks. Australian employment growth easily surpassed expectations in February, sending the jobless rate lower and underscoring the economy’s resilience to the most aggressive policy tightening cycle in a generation. Meanwhile, wagers that the Reserve Bank’s tightening campaign may be nearing the end are helping shares of Australian lenders outperform some overseas peers amid banking-sector concerns. In New Zealand, the S&P/NZX 50 index rose 0.7% to 11,699.02.

In FX, the Dollar Index is down 0.1%. The New Zealand dollar is the weakest among the G-10’s while the Australian dollar and Swiss franc outperform. The euro recovered from a two-month low. The Swiss franc strengthened after a sharp selloff Wednesday, while the euro recovered from a two-month low ahead of the expected rate increase from the ECB later

Treasuries were mixed, with the two-year yield back to 4% during London session after historically steep declines in recent days. The 10-year yield was little changed. Bonds across Europe declined, with the German 10-year yield up 17 basis points. US 2-year cheaper on day by ~7bp with long-maturity yields little changed, flattening 2s10s; 10-year ~3.45%, within 1bp of Wednesday’s close. Bonds across Europe declined, with the German 10-year yield up 15 basis points to 2.28%; markets are pricing a 60% chance of a 50 basis-point hike. Ongoing leadership from bunds is anticipated with ECB rate decision at 9:15am New York time. Fed hike premium eases back into swaps following risk-on European move, with 20bp of hikes implied by the March OIS, up from 13bp at Wednesday’s close

In commodities, crude futures advance with WTI rising 0.8% to trade near $68.20. Spot gold is little changed around $1,919. Bitcoin gains 2.5%.

To the day ahead now, and the main highlight on the calendar will be the ECB’s monetary policy decision and President Lagarde’s subsequent press conference. On the data side, US releases will include the weekly initial jobless claims, February’s housing starts and building permits, and the Philadelphia Fed’s business outlook for March. In the US, Treasury Secretary Yellen will be appearing before the Senate Finance Committee. Finally, earnings releases include FedEx and Dollar General.

Market Snapshot

S&P 500 futures up 0.2% to 3,900.50
MXAP down 1.0% to 155.12
MXAPJ down 0.9% to 498.60
Nikkei down 0.8% to 27,010.61
Topix down 1.2% to 1,937.10
Hang Seng Index down 1.7% to 19,203.91
Shanghai Composite down 1.1% to 3,226.89
Sensex little changed at 57,556.46
Australia S&P/ASX 200 down 1.5% to 6,965.54
Kospi little changed at 2,377.91
STOXX Europe 600 up 0.9% to 440.38
German 10Y yield little changed at 2.23%
Euro up 0.4% to $1.0623
Brent Futures up 1.2% to $74.54/bbl
Gold spot up 0.0% to $1,918.81
U.S. Dollar Index down 0.34% to 104.29

Top Overnight News from Bloomberg

Credit Suisse Group AG sought to arrest a collapse in investor confidence Thursday by opening a 50 billion Swiss franc credit line with the country’s central bank and offering to buy back debt, as executives and government officials plot the next steps for the troubled lender: BBG
The European Central Bank’s plan to raise interest rates by another half-point on Thursday has been thrown into question by banking turmoil: BBG
Bonds slid as concerns over the banking system receded and as traders braced for a decision by the European Central Bank: BBG
The Federal Reserve’s emergency loan program may inject as much as $2 trillion of funds into the US banking system and ease the liquidity crunch, according to JPMorgan Chase & Co: BBG
China’s holdings of US government bonds hit a 13-year low at the beginning of the year amid American interest rate increases and growing tensions between the world’s two largest economies, data released on Wednesday showed. Chinese holdings of United States Treasury securities slid to US$859.4 billion in January, declining for the sixth straight month and marking their lowest point since May 2009. SCMP
Today’s ECB decision offers the first indication of what the banking blowup means for monetary policy. Its plan to raise rates by 50 bps has been thrown into question, with investors paring bets closer to 25 bps. Officials will also consider fresh economic forecasts that are set to show headline inflation receding faster than previously, even as underlying price gains prove stickier. BBG
Credit Suisse surged the most on record after getting a $54 billion lifeline loan from the Swiss central bank. It also plans to buy back $3.2 billion worth of debt. Shareholder Saudi National Bank said the panic was “completely unwarranted.” BBG
Europe’s financial regulators are furious at the handling of the Silicon Valley Bank collapse, privately accusing US authorities of tearing up a rule book for failed banks that they had helped to write. While the disapproval has yet to be conveyed in a formal setting, some of the region’s top policymakers are seething over the decision to cover all depositors at SVB, fearing it will undermine a globally agreed regime. FT
Fears of a recession are growing on Wall Street, as stress in the banking sector following the collapse of Silicon Valley Bank and worries over the fate of Credit Suisse darken the outlook for the economy and markets. RTRS
Russia’s oil income is being significantly curtailed because of Western sanctions without global energy supplies being materially impacted. WSJ
There are some signs of increased pressure within US dollar funding markets as fears grow around the outlook for the banks and the turmoil drives lenders to shore up their own cash buffers. BBG
We are raising our subjective probability that the US economy will enter a recession in the next 12 months by 10pp to 35%, reflecting increased near-term uncertainty around the economic effects of small bank stress. GIR
First Republic Bank is said to be exploring strategic options including a sale. The FDIC asked banks interested in acquiring SVB and Signature Bank to submit bids by tomorrow, Reuters reported. The FDIC may not be willing to sell SVB’s $74 billion loan book at a desirable price, a potential letdown for PE giants. BBG

A more detailed look at global markets courtesy of Newsquawk

Asia-Pac stocks were mostly lower as the region followed suit to the losses in global peers after the recent Credit Suisse turmoil added to the ongoing banking sector fears. However, the major indices were off worse levels and US equity futures nursed some of the prior day’s losses after Swiss authorities attempted to soothe market concerns and Credit Suisse later announced it will take decisive action to strengthen its liquidity including borrowing up to CHF 50bln from the central bank. ASX 200 was dragged lower by weakness in financials and underperformance of the commodity-related sectors with energy stocks hit after oil prices slumped to their lowest in more than a year, although the index finished off its lows after the stronger-than-expected employment data. Nikkei 225 retreated below the 27,000 level for the first time since January amid the banking sector jitters and geopolitical concerns after North Korea fired a suspected ICBM ahead of a leadership summit between Japan and South Korea. However, Japanese stocks clawed back some of their losses as participants also digested mixed data releases in which Machinery Orders topped forecast with a surprise expansion Y/Y, while Exports growth missed but still accelerated from the prior month. Hang Seng and Shanghai Comp. conformed to the downbeat mood amid frictions with the US which threatened to ban TikTok if its Chinese founder doesn’t sell an ownership stake, although the downside was stemmed in the mainland after the central bank’s continued liquidity efforts.

Top Asian News

China’s securities regulator reportedly paused the approvals for new GDR sales amid concerns that China’s A-share market could be pressured, according to Bloomberg.
US threatened to ban TikTok if its Chinese founder doesn’t sell ownership stake, while TikTok said the forced sale won’t resolve national security issues, according to WSJ.
China’s Commerce Ministry, when asked if restrictions on the import of Australian coal have been removed, says they can apply for coal import licences normally.

European bourses are bolstered amid as the region reacts to liquidity support for Credit Suisse (+18%), Euro Stoxx 50 +0.7%, though the tone is tentative pre-ECB. As such, banking names are the standout outperformer, SX7P (+1.5%) albeit with someway to go to recoup the week’s pressure. Stateside, futures are mixed and near unchanged levels overall with banking names leading the pre-market upside, though the European-related reporting does return focus back to the US’ own concerns.

Top European News

BoE held emergency talks with international counterparts on Wednesday night as the crisis deepened at Credit Suisse, according to The Telegraph.
UK DMO Chief said global financial markets are pretty stressed and volatile, while it was noted that the UK’s 2023/24 financing needs are a very large amount of money and that the auction plan is designed to avoid too much stress on primary dealers. DMO chief added that the focus on short-dated gilt issuance reflects the need to limit investors’ duration risk and to raise cash at auctions.
Norges Bank Regional Network Report: Developments are slightly stronger than contacts expected in the previous survey, but there is considerable variation across sectors.

Latest Credit Suisse notes

Credit Suisse (CSGN SW) announced decisive action to pre-emptively strengthen liquidity which included public tender offers for debt securities and it intends to borrow up to CHF 50bln from the SNB under the covered loan facility and short-term liquidity facility. Furthermore, Credit Suisse International is to repurchase certain OpCo senior debt securities for cash of up to about CHF 3bln, while the bank noted that the additional liquidity would support its core businesses and clients.
FINMA and the SNB asserted that the problems of certain banks in the USA do not pose a direct risk of contagion for Swiss financial markets, while they added that Credit Suisse meets the capital and liquidity requirements imposed on systemically important banks and if necessary, the SNB will provide Credit Suisse with liquidity.
SNB confirms it will provide liquidity to Credit Suisse (CSGN SW) against sufficient collateral; says that within its mandate, it can provide liquidity to domestic banks against collateral.
Credit Suisse (CSGN SW) launches a tender offer for EUR-denominated notes due 2023 and 2024, offers to repurchase up to EUR 500mln EURO notes, via a memo; launches tender offer for 10 USD-denominated notes and will repurchase up to USD 2.5bln in notes.
Several Credit Suisse (CSGN SW) Asian equity managers are said to be leaving the firm, according to Bloomberg.
US bank giants reportedly cut direct exposure to Credit Suisse for months, according to Bloomberg.
BNP Paribas (BNP FP) is reportedly reducing exposure to Credit Suisse, according to Bloomberg citing sources.
JP Morgan (JPM), on Credit Suisse (CSGN SW), says a takeover is the most likely scenario, especially by UBS (USBG SW); JP Morgan (JPM) maintains its overweight on Credit Suisse (CSGN SW) bonds, believes the announced measures will buy CS time to execute the restructuring.
Spanish banks exposure to Credit Suisse (CSGN SW) is below EUR 1bln, via Reuters citing sources.

The USD is softer on the session, with the index at the mid-point of 104.20-104.70 parameters with G10 peers mostly firmer across the board.
CHF is the outperformer as the SNB/FINMA commitment to provide Credit Suisse with liquidity and subsequent measures by the Co. have supported sentiment after Wednesday’s pressure; USD/CHF at the lower-end of 0.9343-0.9231 ranges.
EUR/USD has surmounted 1.06 ahead of the ECB given the above Swiss action restores some conviction in the ECB tightening, albeit market pricing is evenly split between 25bp and 50bp.
Kiwi is the sole G10 laggard given soft Q4 data overnight and dovish revisions from ASB on the RBNZ in the wake of this release; USD/NZD below 0.6150 from an earlier 0.6191 peak.
JPY retains an underlying bid despite the easing in haven demand, perhaps given overnight data, while SEK and NOK are firmer/softer amid regional inflation and survey updates.

Fixed Income

Core benchmarks remain under pressure having unwound much of earlier have premium; albeit, both USTs and EGBs remains well within mid-week ranges.
Specifically, Bunds are holding around 136.000 within 135.73-137.19 parameters, USTs just below 115.00 in 114.26-115.19 ahead of the US data before (given clock changes) the ECB decision and Lagarde’s press conference.

Commodities

Crude benchmarks are deriving support from the softer USD after yesterday’s near USD 4/bbl lower settlement, though as outlined above the tone is tentative going into the sessions risk events.
Gas prices are mixed once again, though the magnitude of action is contained.
G7 opposes lowering the Russian oil price cap from USD 60/bbl, according to WSJ
Metals are now mostly positive on the session, given the USD action, with spot gold comfortably above USD 1900/oz and LME Copper holding near USD 8.5k/T.

Geopolitics

France is accused of delaying the EU’s EUR 2bln plan to replenish Ukraine’s artillery shell stocks, according to The Telegraph. In relevant news, Israel approved export licences for the sale of anti-drone systems to Ukraine which could be used to counter Iranian drones used by Russia, according to Nexta.
Russian Defence Minister said US drone flights near Crimea are provocative and could provoke escalation. It was also reported that the US and Russian defence ministers held a phone call which was initiated by the US, according to Interfax.
North Korea fired a missile which was likely an ICBM type and South Korea’s military said North Korea’s series of missile launches are against UN resolutions. Furthermore, South Korean President Yoon ordered the military to thoroughly carry out joint drills with the US and maintain readiness against North Korean threats, while he said North Korea will pay the price for reckless provocations and called for strengthening security cooperation with the US and Japan, according to Reuters.
Taiwan’s Foreign Ministry said it told Honduras many times that Taiwan is willing to help in its development and it repeatedly reminded Honduras to pay attention to China’s false promises. It was also reported that the US State Department said they will continue to monitor the next steps closely regarding Honduras seeking official ties with China and that the Honduran government should be aware that China makes many promises that are unfulfilled
Indian Army Cheetah helicopter has crashed near Mandala hills area of Arunachal Pradesh. Search operation for the pilots has started. More details awaited, according to army sources cited by ANI.
Iran has agreed to halt military support for Yemen’s Houthis rebels as part of the Iran-Saudi deal, according to WSJ.

US Event Calendar

08:30: Feb. Import Price Index MoM, est. -0.2%, prior -0.2%
- Import Price Index YoY, est. -1.1%, prior 0.8%
- Export Price Index YoY, prior 2.3%
- Export Price Index MoM, est. -0.3%, prior 0.8%
08:30: March New York Fed Services Business, prior -12.8
08:30: March Initial Jobless Claims, est. 205,000, prior 211,000
- March Continuing Claims, est. 1.72m, prior 1.72m
08:30: Feb. Building Permits, est. 1.34m, prior 1.34m
- Feb. Building Permits MoM, est. 0.3%, prior 0.1%
- Feb. Housing Starts, est. 1.31m, prior 1.31m
- Feb. Housing Starts MoM, est. 0.1%, prior -4.5%
08:30: March Philadelphia Fed Business Outl, est. -15.0, prior -24.3

DB’s Jim Reid concludes the overnight wrap

Yesterday was a day to look at screens and really wonder what as a research analyst you can really say that helps anyone. The situation is fairly binary and you, alongside all the financial markets, are not privy to any of the conversations behind the scenes. In short, Credit Suisse shares fell another -24.24% yesterday, marking its 8th consecutive daily decline (cumulative loss -39.04%) and taking the share price down to an all-time low. Shortly past midnight however, the news came through that Credit Suisse was going to borrow as much as 50bn francs from a Swiss National Bank liquidity facility, and would also be repurchasing certain OpCo senior debt securities of up to 3bn francs. That’s left futures on the Euro Stoxx 50 up by +2.34% this morning, following the index’s -3.46% loss the previous day. We’ll have to see if this will be enough to calm the market, but things are looking more positive than they did at the time of the European close yesterday, with the Euro itself also up from a low of $1.052 yesterday afternoon to $1.061 this morning. Asian equities are still lower, with the Nikkei (-0.90%), CSI 300 (-0.73%) and the Hang Seng (-1.56%) posting losses, but thus far we’re avoiding the larger-scale declines witnessed in Europe and the US.

That news from Credit Suisse overnight has come on the back of an incredibly turbulent 24 hours in markets. It began after the Chairman of Credit Suisse’s top shareholder, the Saudi National Bank, ruling out investing more in the company in a Bloomberg interview yesterday morning. In turn, that triggered a massive slump in Credit Suisse’s shares, which fell as much as -30.80% intraday before closing at -24.24%. After the European close however, we saw their American Depositary Receipt rally +15.3% after the Swiss National Bank said in a statement that they would offer a liquidity backstop if needed. That followed speculation throughout the day as to whether there might be an official announcement, particularly after the FT reported that Credit Suisse had asked the Swiss National Bank for a public show of support.

All that came after some major stress in the credit market, with Credit Suisse’s 1yr CDS trading above 3000bps, and the 5yr CDS up +308.6bps to 842.5bps at the European close. Senior cash bonds maturing in just over 5 years settled in the €72 range and AT1s around $34.5. So the bond market was indicating a distressed issuer. After the SNB statement, the USD Credit Suisse bonds that mature in 2033 rallied $15 or so from $70 near the European close to finish yesterday around $85.

Given the various announcements last night, it does look for the time being that risk markets have stabilised. The S&P 500 was down by -2.10% at its lows of the day – just after the European close – before recovering on headlines that the big US banks had little exposure to CS, and then jumping higher on the news that the SNB would step in to help CS if there was a liquidity event. That “only” left the index down -0.70% and near its highs for the day, and this morning its futures are up a further +0.39%. In fact, the bounce in risk sentiment and lower yields meant that tech stocks outperformed yesterday with the Nasdaq closing in positive territory (+0.05%). A heroic performance.

Even with this bounceback later in the session, US banks were still a big underperformer with the KBW banks index down -3.56% and the majors like JPM (-4.72%) and Citi (-5.44%) seeing notable losses. Regionals underperformed again with First Republic Bank down -21.37% on the day with the selloff taking another leg lower after the bank’s bonds were downgraded from A- to BB+ by S&P.

Earlier, the STOXX Banks index fell -8.40% on the day, marking its worst performance since March 2020 at the height of the Covid selloff, whilst there were even larger losses for Société Générale (-12.18%) and BNP Paribas (-10.11%).

Ahead of today’s unfortunately timed ECB meeting, the continent’s sovereign bonds witnessed an epic rally across multiple countries, and Germany’s 2yr (-48.3bps) and 10yr (-29.0bps) yields saw their biggest daily declines in data going back to reunification in 1990. In France, the 10yr yield (-24.9bps) had its biggest move lower since December 2011, and the Dutch 10yr yield (-27.7bps) was another to see the biggest decline in available data back to 1999. Those concerns further led to a massive decline in the Euro itself, which had its largest daily decline against the US Dollar (-1.56%) since the height of the pandemic-related market turmoil in March 2020.

It was a wild 24 hours for central bank pricing but since Credit Suisse’s announcement shortly after midnight, there’s been a bit more confidence that the Fed might follow through with a 25bp move at the next meeting. For instance, the hike priced in has gone from 11.8bps at the close last night to 15.5bps this morning, indicating a 62% chance of a move. Investors are also pricing in more rate cuts for the remainder of the year, with the implied rate for the December meeting coming down another -49bps yesterday to 3.75%, and having traded as low as 3.4% intra-day, although again that’s up +10bps overnight following the more positive tone more broadly. Those collective moves prompted an astonishing sovereign bond rally, with the 10yr Treasury yield (-23.4bps) at one point being down as much as 34bps intraday, before closing down -23.4bps, and this morning yields are up a further +2.6bps to 3.48%. Meanwhile the 2yr yield was down -36.3bps to 3.887%, taking it back to a level we haven’t seen since September, with a bounce of +6.3bps this morning.

Against this backdrop of instability, we now arrive at a rather unpredictable ECB decision today. At the last meeting in February, the Governing Council’s statement pre-committed to a 50bps hike at this meeting, and it was widely expected they’d follow through until the SVB collapse. But in light of the market turmoil, investors have reassessed the likelihood of a 50bps move, and see a smaller 25bps hike as the more likely option, even after the overnight headlines. For instance, overnight index swaps are now pricing in a 28.6bps hike today, which implies just an 14.5% chance they’ll go for the 50bps option. Our European economists share the view that a 25bp hike today seems more likely than the intended 50bp hike, given that we have a global financial shock of uncertain size and duration playing out. You can read their latest thoughts on today’s meeting here

Given the global risk-off moves, yesterday brought a major slump in commodities, with both Brent Crude and WTI oil prices falling to levels last seen back in December 2021, at $73.69/bbl and $67.61/bbl respectively. At the same time, the key industrial bellwether of copper fell -3.84% to a 2-month low of its own. The moves also follow data on US producer prices in February that came beneath expectations, with headline PPI falling -0.1% on the month (vs. +0.3% expected), which took the year-on-year measure down to +4.6% (vs. +5.4% expected).

Here in the UK, the government’s Spring Budget received rather less attention than usual given the instability in global markets. Nevertheless, Chancellor Jeremy Hunt used the opportunity to outline a variety of reforms to the tax and benefit system designed to encourage growth. That included fresh support for childcare, with 30 hours free childcare for children over nine months. He also removed various barriers to work, including a more generous tax treatment of pensions designed to keep workers (and doctors in particular) in the labour market. Otherwise, the government announced that the current support for energy bills would be extended for a further 3 months, whilst the independent OBR predicted that the UK would avoid a technical recession this year (two consecutive quarterly contractions), even if the full-year contraction for 2023 would still be -0.2%.

Finally, looking at yesterday’s other data, US retail sales contracted by -0.4% in February as expected. However, the Empire State manufacturing survey for March fell by more than expected to -24.6 (vs. -7.9 expected). In the meantime, there was further evidence that housing activity had bottomed out, with the NAHB’s housing market index up to 44 in March (vs. 40 expected), thus marking its third consecutive monthly advance.

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