16 Mar

European indices collapsed because of the problems with Credit Suisse. Oil falls amid intensifying banking crisis

March 16, 2023

By JustMarkets 

The released US producer price index data came in better than expected. Factory inflation decreased by 0.1% last month. Markets reacted with a drop in US Treasury bond yields. This indicates an impending change in the Fed’s rhetoric and the imminent end of the rate hike cycle. Federal funds futures show a 40% probability that the rate will remain unchanged at the March 22 meeting and a 60% probability that 25 bps will raise the rate to the 5.00% level. At the same time, it is expected that the maximum rates will be formed already at the next meeting, and by the end of 2023, the Fed will cut the rate to 3.75%. At the close of the stock market on Tuesday, the Dow Jones Index (US30) was down by 0.87%, and the S&P 500 Index (US500) fell by 0.70%. The NASDAQ Technology Index (US100) gained 0.05% yesterday.

Concerns about the deepening banking crisis persist. Shares of the struggling Swiss bank Credit Suisse fell to a new historic low. Credit Suisse’s biggest sponsor, the National Bank of Saudi Arabia, said it would not provide further financial assistance to the bank. The bank’s shares fell more than 26%. After European markets closed, Swiss regulators said that Credit Suisse was now meeting capital and liquidity requirements and that the Swiss National Bank would provide additional liquidity if needed. It became known today that Credit Suisse will exercise an option to borrow up to 50 billion Swiss francs ($53.68 billion) from the Swiss National Bank under two lines of credit to strengthen liquidity conditions. This situation has led to renewed sell-offs among European banks: French Societe Generale, Spanish Banco de Sabadell, and German Commerzbank fell sharply yesterday, pulling European indices into the abyss. German DAX (DE30) shed by 3.27%, French CAC 40 (FR40) fell by 3.58%, Spanish IBEX 35 (ES35) lost 4.37%, British FTSE 100 (UK100) closed yesterday down by 3.83%.

The consumer price index in France rose from 6.0% to 6.3% in annual terms. Inflationary pressures in Europe remain resilient and figures from Germany, Spain, and France clearly show it. Reuters reported yesterday that the European Central Bank intends to stick to its plans to raise its key rate by 50 basis points at its meeting today. ECB head Christine Lagarde’s remarks on the European central bank’s future plans are also worth a closer look. The Office for Budget Responsibility (OBR) forecast, taking into account the new UK budget, argues that the country will not enter a technical recession as originally thought. Instead, the UK economy is expected to contract by a modest 0.2%. The government has also pledged to halve inflation, and further OBR projections suggest that inflation will fall to 2.9% by the end of 2023.

Gold strengthened its position at $1900 on Wednesday, hitting a new six-week high. The banking crisis is forcing investors to hide money in precious metals. The technical on spot gold suggests it could go much higher. The fundamental picture now is also in favor of further growth in gold and silver.

Crude oil prices are down for the third straight day. The US WTI crude oil has fallen below $70 a barrel. The collapse of SVB, the problems of Credit Suisse, and the general financial instability contribute to the decline in quotes. While US authorities tried to ease fears of a broader contagion in the banking sector, the financial turmoil at Swiss bank Credit Suisse posed an additional threat to the global economy. At the same time, the IEA (International Energy Agency) reported an increase in oil inventories, pushing oil supply to an 18-month-high.

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Asian markets were mostly up yesterday. Japan’s Nikkei 225 (JP225) gained 0.03%, China’s FTSE China A50 (CHA50) added 0.02%, Hong Kong’s Hang Seng (HK50) jumped by 1.52%, India’s NIFTY 50 (IND50) declined by 0.42% and Australia’s S&P/ASX 200 (AU200) was positive 0.86% by Wednesday.

Bank of Japan (BOJ) Governor Haruhiko Kuroda, who is retiring in April, said his ten-year monetary experiment, during which $3.7 trillion was injected into the economy, was “half successful.” In addition to lowering borrowing costs, Kuroda’s policies sought to sway public opinion and lead the public out of deflation with a powerful kick of monetary stimulus. Kuroda left a mixed legacy for the Bank of Japan: his massive stimulus was praised for pulling the economy out of deflation, but it reduced bank profits and distorted market functions through prolonged low rates. In 2016, Kuroda added a cap on long-term rates as part of a policy called yield curve control (YCC), which is still in effect. Many analysts expect the Bank of Japan to begin dismantling Kuroda’s stimulus policy under a new governor, Kazuo Ueda.

In Australia, the latest labor market data showed that the economy added 64,600 jobs last month, with the unemployment rate falling to a record 3.5%. The stronger-than-expected employment figures for February reinforced fears of further interest rate hikes by the Reserve Bank of Australia (RBA).

S&P 500 (F) (US500) 3,891.93 −27.36 (−0.70%)

Dow Jones (US30)31,874.57 −280.83 (−0.87%)

DAX (DE40) 14,735.26 −497.57 (−3.27%)

FTSE 100 (UK100) 7,344.45 −292.66 (−3.83%)

USD Index 104.74 +1.14 (+1.10%)

Important events for today:
  • – Japan Trade Balance (m/m) at 01:50 (GMT+2);
  • – Australia Unemployment Rate (m/m) at 02:30 (GMT+2);
  • – Italian Consumer Price Index (m/m) at 11:00 (GMT+2);
  • – US Building Permits (m/m) at 14:30 (GMT+2);
  • – US Initial Jobless Claims (w/w) at 14:30 (GMT+2);
  • – US Philadelphia Fed Manufacturing Index (m/m) at 14:30 (GMT+2);
  • – Eurozone ECB Interest Rate Decision at 15:15 (GMT+2);
  • – Eurozone ECB Monetary Policy Statement at 15:15 (GMT+2);
  • – Eurozone ECB Press Conference at 15:45 (GMT+2);
  • – US Natural Gas Storage (w/w) at 16:30 (GMT+2).

By JustMarkets

 

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.


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