MARKET WRAPS
Watch For:
ECB rate announcement; Italy CPI; trading updates from Enel, Eni, Rentokil Initial, Deliveroo, Halma, Investec, Sberbank
Opening Call:
Stock futures climbed after Credit Suisse said it would borrow from the Swiss central bank, helping ease some market jitters. In Asia, stock benchmarks were lower, Treasury yields rebounded from overnight losses; the dollar edged lower; while oil futures rose and gold fell.
Equities:
European stock futures jumped early Thursday after news that Credit Suisse would borrow funds from the Swiss central bank and buy back some debt securities helped calm market jitters.
Shares in Europe had tumbled Wednesday, as a sharp plunge in shares of Credit Suisse dragged other European bank stocks lower.
Credit Suisse said it would exercise its option to raise as much as 50 billion Swiss francs from the Swiss National Bank in a bid to staunch liquidity concerns. The firm called the decision a "decisive action to pre-emptively strengthen its liquidity."
Investors will be closely watching the reaction when Europe reopens for trading Thursday morning, following another day in markets dominated by concerns that global banking problems may be on the verge of bringing the economic expansion to an end.
The Swiss bank's market meltdown Wednesday prompted European Central Bank officials to call banks it supervises to ask about their exposure to the bank, The Wall Street Journal reported. Investor fears about contagion drove a market rout that wiped out nearly $75 billion in the value of European bank stocks, according to an analysis by Dow Jones Market Data.
Selling that had been mostly contained to U.S. stocks is broadening on the risk that banking-sector turmoil could be what tips the U.S. economy into a recession that analysts have been predicting for over a year. The market's obsession with inflation and whether the U.S. Federal Reserve would raise interest rates by a quarter-point or a half-point has been eclipsed by the new fear.
"It has all the signs of a panic in the stock market and it has all the signs of panic in the bond market," said David Kotok, chief investment officer at Cumberland Advisors. If risk premiums start to surge in corporate and mortgage-bond markets, that will likely set off another leg of selling in stocks, he said.
Efforts by U.S. officials and regulators to stop Silicon Valley Bank's collapse from spilling over into the financial system appeared to have stabilized markets Tuesday. But the selloff in stocks and hunt for safe assets began again Wednesday, showing that investors remain on edge about the potential for tremors in the global banking system.
The ECB rate decision later today will also be in focus, with markets having slashed bets on the central bank raising rates by 50 basis points amid worries surrounding Credit Suisse.
Forex:
The dollar edged lower early Thursday in Asia.
Both the dollar and the yen have strengthened recently amid renewed concerns about financial contagion, said CBA.
A spike in measures of volatility such as the VIX and the MOVE indexes and/or a slump in stock markets will probably be a signal for another move higher in JPY and USD, CBA added.
Bonds:
Treasury yields erased losses in Asia after Credit Suisse said it would borrow from the Swiss central bank to shore up its liquidity.
U.S. bond yields had fallen Wednesday after troubles at Credit Suisse reverberated around financial markets and prompted traders to factor in a full percentage point of rate cuts from the Federal Reserve by year-end. The selloff in Credit Suisse quickly spread to European banks and sparked a furious and destabilizing rush toward the safety of government bonds.
Energy:
Oil futures climbed in Asia, rebounding after the U.S. benchmark closed below $70.00/bbl for the first time since December 2021.
Traders will be weighing concerns about economic stability in the U.S. and Europe, stoked by the collapse of SVB and troubles at Credit Suisse, against OPEC's monthly report this week signaling growing optimism over Chinese demand.
OPEC said it expects global oil demand growth to be steady at 2.3 million barrels a day this year, largely on par with its previous estimates.
Metals:
Gold fell early Thursday in a likely technical correction following the precious metal's recent surge on safe-haven demand.
However, gold still seems to provide the most competitive risk-reward, as strong physical demand should keep losses subdued, if central banks continue to battle inflation despite bank-related liquidity worries, said TD Securities said.
Read: Market Turmoil Has Helped Gold. Now Inflation Could Too.
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Aluminum prices rose amid various supply disruptions.
Major aluminum supplier Alcoa said its Australia-based smelter will reduce output and can now only produce 75% of its total capacity due to operational issues, ANZ said. This is in addition to lower production capacity in China amid power shortages.
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Chinese iron-ore futures fell, as fallout from the latest banking crisis spilled over into commodities.
"Risk over Credit Suisse is growing which curbed the market's risk appetite," said China Futures.
Also, although China's January-February property investment and property sales showed a gradual recovery, the pace was weaker than expected and weighed on market sentiment, China Futures said.
TODAY'S TOP HEADLINES
Bank Failures, Market Turmoil Fuel Bets on a Pause in Fed Interest-Rate Increases
More investors anticipate that the Federal Reserve's rate increase cycle could be over due to broader financial turmoil from the failure of two U.S. regional banks in the past week.
Investors in interest-rate futures markets on Wednesday saw a nearly 50% chance that the Fed won't increase rates at their March 21-22 meeting, up from 30% on Tuesday, according to data compiled by CME Group. That would leave the federal-funds rate between 4.5% and 4.75%.
Credit Suisse Stock Decline Tests Strength of European Banks
LONDON-A sharp drop in Credit Suisse Group AG's stock is putting European bank regulations to the test.
The Swiss lender's meltdown Wednesday prompted European Central Bank officials to call banks it supervises to ask about their exposure to the bank, people familiar with the matter said.
G-7 Opposes Lowering Russian Crude Price Cap From $60 a Barrel
The Group of Seven advanced democracies want to keep the price cap on Russian crude at $60 a barrel, according to people familiar with the matter, thwarting hopes in some European capitals of tightening the Western sanctions this month.
European Commission officials warned the bloc's member states about the G-7 position, saying that President Biden had told European Commission President Ursula von der Leyen in the Oval Office of the White House last week there was no appetite in Washington for adjusting the oil sanctions, according to the people familiar with the matter.
Falling Rates Could Also Be a Headache for Banks
Rising interest rates created a liquidity problem for banks. But falling rates could give them an earnings problem.
One consequence of the surge of worry about banks has been a snapping back of the yield curve, as traders bet on a possible slowdown in the Federal Reserve's pace of interest-rate increases. Shorter-term yields are dropping much faster than longer-term yields. The curve remains mostly inverted, meaning shorter-term yields are for the most part higher than longer-term ones. But much less so.
Credit Suisse Promises Overhaul in Wake of Rout as Regulators Offer Lifeline
Credit Suisse Group AG said it would borrow up to 50 billion Swiss francs, equivalent to $53.7 billion, from the Swiss central bank to shore up its liquidity, capping a day in which fears about the health of global banks leapfrogged to Europe from North America and the giant lender's shares dropped as much as 24%.
The bank also said it would repurchase $3 billion worth of senior debt whose value has plunged along with the perceived health of banks on both sides of the Atlantic. The Zurich firm stressed in a press release issued in the evening in New York that it was intent on simplifying its structure and better serving customers.
Market Stress Snarls Trading in U.S. Treasurys
The markets for the world's safest and most liquid assets, the government bonds issued by the U.S. and other rich countries, came under immense stress on Wednesday following a week of worries about the health of global banks.
Liquidity, the capacity to trade quickly at quoted prices, has fallen sharply in two of the keystone markets, those for U.S. Treasurys and German bunds, traders said. Difficulties including wider price spreads and slower executions are now spreading to many other markets, they said, including those for derivatives that firms and traders use to lock in prices and hedge risks weeks and months ahead of time, such as options, futures and swaps.
Credit Suisse Will Borrow Up to $53.7 Billion
Credit Suisse Group AG, the Swiss bank whose shares tumbled Wednesday as fears about the health of global banks jumped the Atlantic Ocean, said it would exercise its option to raise as much as 50 billion Swiss francs, equivalent to $53.7 billion, from the Swiss National Bank in a bid to stanch liquidity concerns.
The firm, based in Zurich, called the decision a "decisive action to pre-emptively strengthen its liquidity."
BHP Says New Claimants Added to U.K. Class Action Over Dam Collapse
BHP Group Ltd., the world's biggest miner by market value, said roughly 500,000 new claimants have been added to a class action in the U.K. over a catastrophic dam failure in Brazil in 2015 that killed 19 people and polluted hundreds of miles of rivers in Brazil.
(MORE TO FOLLOW) Dow Jones Newswires
03-16-23 0117ET
