Selling pressure eases as Credit Suisse taps central bank funding

US equities were able to claw out of a deep hole yesterday to finish mixed, as the recent turmoil in the US banking sector made its way to Europe. Credit Suisse fell after its largest shareholder said it will not provide further capital assistance, further amplifying concerns toward the financial system that have come in the wake of failures of some US regional financial institutions. The worries overshadowed a welcome benign read on February producer price inflation and a retail sales report that showed a key core component of spending unexpectedly rose and the prior month’s figures were revised to larger-than-expected jumps.  The Dow Jones Industrial Average decreased 0.9% to 31,875, and the S&P 500 Index was down 0.7% to 3,892, while the Nasdaq Composite gained 0.1% to 11,434.  Elsewhere, European equity markets sank by over 3.0% driven by losses of around 7% in the region’s banks as investors renewed their concerns about the banking system. 

Summary as at 15.03.2023 

• Asian equity markets retreated this morning as bank shares faced renewed selling on fears of a global borrowing crisis, although an upbeat outlook on the Chinese economy helped limit losses in some regional markets.  Investors also digested data showing Japan’s trade deficit widened in February, while Australia’s unemployment rate declined to 3.5% in the same month.  Shares in Australia, Japan, South Korea, Hong Kong, and mainland China all declined. 
• European shares are set to surge, and US equity futures are flat after Credit Suisse said it would borrow money from Switzerland’s central bank and seek to repurchase debt. 

• Oil prices continued to fall on Thursday after losing nearly 12% in the past three sessions, weighed down by turmoil in the global banking sector that reverberated across financial markets and prompted investors to reduce exposure to risky assets.   
• Credit Suisse said early Thursday that it will exercise an option to borrow the equivalent of $54 billion from the Swiss National Bank under two loans facilities to shore up liquidity conditions.  The bank also said it will open a cash tender offer to repurchase ten dollar-denominated securities for up to $2.5 billion, and a separate tender offer for euro-denominated debt securities for up to €500 million.  The move comes after the bank’s shares plummeted to a record low on Wednesday as its largest investor, Saudi National Bank, declined to offer more support, a day after the bank revealed it had found “material weaknesses” in its financial reporting processes for 2022 and 2021.  
• European Central Bank officials are about to make one of the most consequential decisions in months today, as they judge whether market turmoil centering on Credit Suisse is bad enough to detail a long-touted interest-rate hike.  Suppose they deliver the half-point increase that President Christine Lagarde first flagged in December and declared to be “very, very likely” a little more than 10 days ago. In that case, the risk of harsh hindsight judgments should the situation rapidly deteriorate.  Opting for a smaller quarter-point step, or even less by staying on hold, could delay the effort to tame surging inflation. 
• Retail sales in the US were down 0.4% month-over-month in February, compared to market forecasts of a 0.3% fall, and following an upwardly revised 3.2% surge in January, the biggest gain since March 2021.  Meantime, Producer prices for final demand in the US went down 0.1% month-over-month in February, against market expectations of a 0.3% increase. 
• Goldman Sachs yesterday lowered its 2023 economic growth forecast for the US, citing a pullback in lending from small- and medium-sized banks amid turmoil in the broader financial system.  The firm lowered its growth forecast by 0.3% to 1.2% under expectations that smaller banks will attempt to preserve liquidity in case they need to meet depositor withdrawals, leading to a substantial tightening in bank lending standards. 

• Volkswagen laid out on Wednesday the details of a planned all-electric car costing under €25,000, part of its push to derive 80% of VW passenger brand sales in Europe from all-electric vehicles by 2030.  The car with a 450-km range will be launched in Europe by 2025 and its battery will charge from 10% to 8% in around 20 minutes. 
• First Republic Bank, whose ratings have been cut to junk by S&P and Fitch on Wednesday, is exploring strategic options including a sale.  It said Sunday that it had more than $70 billion in unused liquidity to fund operations, but still, its share fell 21% yesterday to a decade-low, giving it a market value of $5.8 billion.   The lender specializes in private banking and wealth management.