ECB raises rates to be new 14-year high - German 10-year bond yields are down after the ECB; Repricing a 25-bps rate hike at the March FOMC meeting following the ECB's decision to raise rates by 50 bps
GLOBAL CAPITAL MARKETS OVERVIEW, ANALYSIS & FORECASTS:
Author: Dr. Alexander APOSTOLOV (researcher at Economic Research Institute at BAS)
The Dow closed above 350 points, with the S&P 500 and Nasdaq up nearly 1.8% and 2.5%, respectively, after news that big banks would back the First Republic Bank brought some relief to the struggling banking sector. Major U.S. banks reportedly agreed to deposit $300 billion with the regional bank, sending its shares up more than 36 percent after opening down 10 percent. Earlier, Treasury Secretary Janet Yellen told the Senate Finance Committee that the U.S. financial system was in good shape despite the collapse of two mid-sized banks. On the data front, first-time jobless claims have declined, while housing starts and building permits show the housing market is recovering.
The Canada S&P/TSX composite index rose 0.8 percent Thursday to close around 19530,0, following Wall Street's rally as support from big banks to bait out First Republic banks brought some relief to the struggling banking sector. Toronto's financial industry rose nearly 5.0 percent, while giants TD Bank and BMO rose 2.1 percent and 2.0 percent, respectively. Weightier energy producers also posted gains, rising 4.1 percent after crude prices rebounded. Technology stocks performed well, up 7.1%. On the data front, domestic wholesale sales growth was revised downward in January.
European shares rallied on Thursday, with the benchmark Stoxx 600 gaining 1.1% and the Stoxx Banks Index recovering 1.1% from its worst day in over a year. Credit Suisse shares rose 18% from record lows after the bank said it would borrow as much as $54 billion from the country's central bank through secured loans and short-term liquidity facilities. At the same time, the European Central Bank insisted on raising interest rates by 50 basis points to fight inflation. It said that the future trend of interest rates would depend on the data brought about by the turmoil in the banking system in Europe and the United States. President Christine Lagarde also said that the eurozone banking sector is resilient, with sufficient capital and liquidity. The FTSE MIB rose 1.5% to close at 25,940 on Thursday, recouping heavy losses from the previous session, as investors monitored the risk of a European banking crisis and priced in a rate hike from the European Central Bank. As previously promised, the ECB raised its main policy rate by 50 basis points to expand its efforts to reduce inflation. Still, the bank refrained from signaling its next move, citing heightened uncertainty in Europe's financial sector. Bank shares led gains in Milan, easing from a 7 percent slide in the previous session after Credit Suisse said it would inject liquidity from the Swiss National Bank. The ECB also supported the sector's choice to delay a decision on whether quantitative tightening would accelerate after the second quarter, and thus Italian BTP prices. UniCredit led the rebound with a nearly 3% gain. Technology and luxury brands also closed higher, with Moncler, Ferrari, and STMicroelectronics shares up between 4.3% and 2.6%. The CAC 40 pared some gains in afternoon trade to trade around 6930, in line with its European counterparts, as investors focused on banking turmoil and the European Central Bank's monetary policy decision. Credit Suisse said it would borrow up to $54 billion from the country's central bank through secured loans and short-term liquidity facilities. Meanwhile, the ECB raised borrowing costs by 50 basis points and pledged to fight inflation. On the corporate front, Hermès (+2.7%), Laurel (+2.1%), and LVMH (+1.9%) were the biggest gainers. On the other hand, Unibail Rodamco (-2.1%) and Renault (-0.4%) were the biggest losers. Also, shares of Societe Generale (-1.5%), Crédit Agricole (-1.4%), and BNP Paribas (-0.4) continued to fall. Domestically, all eyes will be on the votes on pension reform in the Senate and National Assembly.
London shares regained their appeal on Thursday, with the benchmark FTSE 100 recovering from its lowest close in three months to end above 7,400, boosted by consumer discretionary and financial gains. Fears of a wider threat to the global financial system following the collapse of some US banks and the turmoil at Credit Suisse eased after Credit Suisse announced it had arranged to borrow 50 billion francs (£45 billion) from the Swiss National Bank's liquidity facility. Meanwhile, the ECB raised its three policy rates by 50 basis points. President Christine Lagarde also said that the eurozone banking sector is resilient, with sufficient capital and liquidity. Among individual stocks, Rentokil Initial shares rose more than 10 percent to lead the FTSE 100 higher after the pest control services provider raised its medium-term outlook after reporting a better-than-expected annual profit.
The ruble-based MOEX Russia index closed just below the 2,259 level on Thursday, as losses at miners and banks offset gains at energy producers, while investors digested key corporate results. Despite Sberbank's strong performance, Russia's financial sector posted losses after Tinkov Bank reported a 67 percent plunge in core profit in 2022, sending shares in its owner TCS Group down 2.2 percent. Meanwhile, Polymetal shares fell 3.2% as sweeping sanctions from Western countries led to steep losses in 2022, forcing the group to declare no dividends this year. On the other hand, shares in Lukoil and Novatek rose more than 1%, pushing the energy sector to close lower. The isolation of Russian financial markets from Western financial markets since Moscow's invasion of Ukraine has prevented the ECB from raising interest rates and systemic banking risks in Europe and the US from impacting MOEX.
Hong Kong shares fell 162 points, or 0.8%, to 19,378 in early trade on Thursday, retreating from Wednesday's strong rally after Wall Street closed sharply lower overnight, as turmoil at Credit Suisse fueled fears of a global banking crisis. Shares in Credit Suisse fell to record lows for a second straight day on Wednesday, with financials down more than 2%. According to reports, one of Credit Suisse's top investors has ruled out further backing. Credit Suisse said instead, credit plans to strengthen its cash position by borrowing $54 billion from the Swiss National Bank. Consumer, real estate, and technology stocks also fell, with nervousness hanging over the market. In China, stocks also fell after the country's statistics bureau reiterated on Wednesday that the foundations for economic recovery were "not yet firm." At the same time, new Premier Li Qiang said it would take more work to achieve China's 5% GDP target by 2023. AIA Group fell 5.1%, followed by Haidilao International (-4.3%), CNOOC (-3.7%), and PetroChina (-3.2%).
China Shanghai Composite fell 0.4% to around 3,250, and the Shenzhen constituents fell 0.9% to 11,300, tracking global markets lower as fresh turmoil at Credit Suisse fueled concerns about the global financial system's stability. However, this has fueled speculation that major central banks may resort to less aggressive policy tightening to prevent a deep recession. Almost all sectors were down, including weights like Ping An Insurance (-2.1%), China Software (-4.4%), Sungrow Power (-4%), PetroChina Capital (-3.2%) and Sugon Information Industry (-2.4%) A sharp decline in level companies.
Japan Nikkei 225 fell 1.7% to below 27,000, and the Topix fell 2.3% to 1,915, its lowest level in nearly two months, as fresh turmoil at Credit Suisse heightened concerns over the global financial system. Stability concerns. However, this has fueled speculation that major central banks may resort to less aggressive policy tightening to prevent a deep recession. Bank of Japan led the decline, with Mitsubishi UFJ (-5%), Sumitomo Mitsui (-5%), Japan Post Bank (-7.1%), and Mizuho Financial (-5%). Index heavyweights also saw notable losses, such as Shinri Steel (-5.4%), SoftBank Group (-3.5%),
On Thursday, the New Zealand ANZ 50 index rose 81.75 points, or 0.70%, to 11,699.02, shrugging off losses in early trade while shrugging off a near 3-1/2-month low hit in the previous session after Troubled Credit Suisse said today it would borrow nearly $54 billion from the Swiss National Bank to shore up its finances. The U.S. banking sector was in trouble last week with the collapse of Silicon Valley Bank, the 16th largest bank in the country, and two days later, Signature Bank collapsed.
The Australia S&P/ASX 200 fell 2.1% to below 7 points on Thursday, its weakest level in over two months. It was weighed down by fresh turmoil at Credit Suisse that fueled concerns about the global financial system's stability. Concerns. That has sparked speculation that major central banks may adopt less aggressive policy tightening measures to prevent a deep recession. As a result, Australian financials fell, including CBA (-1.8%), NAB (-2.2%), ANZ (-2.4%), Westpac (-2.1%), and Macquarie (-3.3%). Mining and energy stocks also fell sharply, including BHP Billiton (-3.8%), Rio Tinto (-4.3%), Fortescu Metals (-3.7%), Woodside Energy (-3.6%), and Santos companies (-3.2%).
The India BSE Sensex rose 120 points, or 0.2%, to 57,715 on Thursday, snapping a five-session decline but remaining relatively close to the five-month low hit in the previous session, as investors continued to assess European markets—the systemic risk of the potential banking crisis and US bank failure. However, global financial markets got some respite after embattled Credit Suisse said it would borrow 50 billion Swiss francs from the Swiss National Bank, pausing losses in Indian bank shares. Fast-moving consumer goods led gains in Mumbai, with Nestle India and Hindustan Unilever up more than 2%. On the other hand, poor risk sentiment amid ongoing financial turmoil risks lowered base metal prices, forcing Tata Steel down 3%.
REVIEWING THE LAST ECONOMIC DATA:
Reviewing the latest economic news, the most critical data is:
- US: U.S. utilities pulled 58 billion cubic feet of natural gas from storage in the week ended March 10, 2023, missing market expectations of 62 billion cubic feet. This compares with an 866 Bcf in the same week last year and a five-year (2018-2022) average decline of 77 Bcf. Last week's cuts brought inventories down to 1.972 trillion cubic feet, 52.1 billion cubic feet above a year earlier and 37.8 billion cubic feet above the five-year average of 1.594 trillion cubic feet.
- US: Preliminary estimates showed that U.S. building permits surged 11.8% to a seasonally adjusted annual rate of 1.524 million in February 2023, the highest in five months and well above market expectations of 1.34 million. The index increased to 0.1 percent in January after hitting a 31-month low of 1.117 million in December amid persistent inflation and rising borrowing costs. Single-family authorizations rose 7.6% to 777,000 in February, up from a nearly three-year low of 722,000 in January, while volatile multi-sector approvals rose 21.1% to 747,000. Permits increased in the South (10.9% to 845,000)
- US: In February 2023, U.S. export prices rose 0.2% from the previous month, compared with market expectations for a 0.1% decline, after trimming a 0.5% gain the last month. This is the second consecutive monthly increase in export prices since June 2022. Farm commodity prices rebounded (1% in January, -0.9% in January) as higher vegetable, soybean, and corn prices offset lower meat prices. Meanwhile, non-farm commodity prices moderated (0.1% vs. 0.6%). Higher capital and consumer goods prices offset lower costs for nonfarm industrial supplies and materials, automobiles, and nonfarm food. As a result, U.S. export prices fell 0.8% year-on-year in February, the first decline since November 2020, following a 2.2% downward revision the previous month.
- US: In the week ended March 11, the number of Americans applying for unemployment benefits fell by 20,000 from the previous week to 192,000, well below expectations for 205,000. It was the biggest drop since July and was largely driven by a decline in applications in New York, where school workers returned to work after recess. The result was further evidence of continued tightness in the labor market, in line with torrid wage data for February. A tight job market forces employers to raise wages to attract and retain workers, adding to inflationary pressures on the U.S. economy. As a result, the four-week moving average fell 750 points to 196,500.
- US: In February 2023, U.S. housing starts surged 9.8% from the previous month to a seasonally adjusted annualized rate of 1.45 million, the highest in five months and well above the market forecast of 1.11 million, indicating that although mortgages Interest rates and inflation are still rising, some confidence may have been restored in the housing market. Single-family housing starts rose 1.1% to a rate of 830,000 units, and starts for buildings with five or more units rose 24.1% to 608,000 units, the highest level since last April. Starts surged in the Midwest (70.3% to 201,000), West (16.8% to 347,000), and South (2.2% to 796,000) but fell in the Northeast (-16.5% to 106,000). However, housing starts fell 18.4% compared to February 2022. Housing starts were revised to 1.121 million units in January from an earlier estimate of 1.109 million units but remained at the lowest since June 2020.
- CA: Wholesale sales in Canada increased 2.4% month-on-month to C$84.2 billion in January 2023, compared with the initial estimate of a 3% increase after a 0.7% downward revision in December. This increase primarily reflected higher sales of machinery, equipment, and supplies (+3.2%) and food, beverage, and tobacco products (+3.6%). The only sub-sector that declined in January was Motor Vehicles and Motor Vehicle Parts & Accessories (-2.4%). Sales were led by British Columbia, Alberta, and Nova Scotia.
- HK: Hong Kong's seasonally adjusted unemployment rate edged to 3.3% in the three months to February 2023, the lowest level since the first three months of December 2019, after the unemployment rate for November-January was 3.4%. Unemployment fell by 2,700 to 115,700, while employment also fell by 12,000 to 3,650,200. Unemployment fell in most industries, especially retail, transportation, arts, entertainment, and entertainment. The country's labor market is expected to improve further, supported by a gradual normalization of economic activity and an improvement in inbound tourism.
- JP: In January 2023, Japan's industrial production fell by 5.3% month-on-month, compared with a decline of 4.6% in the previous month and 0.3% in the last month. It was the first decline in industrial output since October and the fastest pace in eight months. The main industries responsible for the decrease were the production of machinery (-15.3%, from 0.8% in December), motor vehicles (-10.1%, from 0.5%), and electronic components and equipment (-4.2%, from 0.7%). Industrial production fell 3.1 percent year-on-year in January, the third straight monthly decline after a revised December.
- JP: In January 2023, Japan's core machinery orders (excluding ships and power companies' orders) increased by 9.5% month-on-month, faster than the 0.3% growth in December and far exceeded the market's expected growth of 1.8%. Non-manufacturing orders increased by 19.3%, with construction (99%), transportation and postal services (83.5%), finance and insurance (14.6%), electricity supply (14.3%), and information services (11.1%) gaining maximum. Meanwhile, manufacturing orders fell, but ceramics, stone, and clay products (85.4%), pulp, paper, and paper products (48.3%), and textile mill products (35.4%). As a result, private sector machinery orders rose 4.5% year-on-year in January, reversing a 6.6% decline in December and beating expectations for a 3.5% drop.
- JP: Imports to Japan rose 8.3% year-on-year to 8,552.4 billion yen in February 2023, compared with market expectations of 12.2% and a 17.5% rise in the previous month. It was the 25th straight month of growth in purchases, but the pace of change was the slowest since March 2021, as domestic demand continued to grow and commodity prices eased.
- JP: In February 2023, Japan's exports rose 6.5% year-on-year to 7654.7 billion yen, lower than the market forecast of 7.1% but higher than the previous month's growth of 3.5%. It was the 24th straight month of increase in sales but the weakest pace of change since a decline in February 2021.
- JP: In February 2023, Japan's trade deficit increased to 897.7 billion yen from 711.5 billion yen in the same month last year, while the market generally believed that the gap was 1,069 billion yen. It was the 19th straight month of trade deficits and the longest run since 2015, but exports and imports hit their February maximums. Imports rose 8.3% from a year earlier, the 25th straight month of growth, but the pace of change was the slowest since March 2021. Export growth, meanwhile, slowed to 6.5%, marking the 24th straight month of change but the weakest growth rate since February 2021, to 7,654.7 billion yen. In 2022, Japan posted a trade deficit of 19,971.1 billion yen, its second consecutive annual deficit and the largest since 1979, as high commodity prices and a plunging yen led to a surge in imports.
- CN: In February 2023, the average new home price in China's 70 major cities fell by 1.2% year-on-year, down from 1.5% in the previous month. It was the tenth straight month of declines in new home prices but also the weakest month since July 2022, as Beijing doubled down on policy support since November to ease a property slump. Among China's largest cities, Tianjin (-2.2%, up from 3.0% in January), Shenzhen (-1.1%, 0.9%), Chongqing (-0.4%, 0.6%), and Guangzhou (-0.6%, -0.6%) housing prices fell. Meanwhile, housing prices in Beijing (4.7 percent, 5.2 percent) and Shanghai (3.9 percent, 4.2 percent) grew more slowly. Every month, new home prices rose 0.3%, the biggest gain since July 2021, after increasing 0.1% in January as the Chinese government reopened the economy from the outbreak.
- AU: Australian consumer inflation expectations fell to 5% in March 2023 from 5.1% in February, the lowest level since May 2022, as consumers expect price growth to slow sharply over the next 12 months. The latest figures were also well below last year's peak of 6.7%, likely reflecting subdued inflationary pressures globally. Wage expectations also continued to be weak, with total wages expected to grow by just 0.7% over the next 12 months, pointing to growing pessimism about the outlook for wage growth.
- AU: Australia's seasonally adjusted unemployment rate fell to 3.5% in February 2023 from an eight-month high of 3.7% in January, below market expectations of 3.6%, with the number of unemployed falling by 16,500 to 507,500. Those looking for full-time work fell by 4,800 to 341,500, while those looking for a part-time job rose by 11,700 to 166,000. Employment, meanwhile, rose by 64,600 to 13.83 million, the first increase in three months and beating expectations for a gain of 48,500. Full-time jobs rose by 74,900 to 9,669,300, while part-time work fell by 10,300 to 4,156,900. The participation rate rose slightly to 66.6 percent from 66.5 percent in January. The underemployment rate fell to 5.8% from 6.2%, while the underutilization rate fell to 9.4% from 9.8%. Monthly hours they worked for all jobs increased by 72 million, or 3.9%, to 19.17 million hours.
- NZ: Around noon on Thursday, New Zealand shares fell 60 points, or 0.51%, to 11,557, hovering near their lowest level since late December. Wall Street closed sharply lower following turmoil at Credit Suisse Groupthe day after some U.S. banks collapsed. The U.S.-listed shares of the global investment bank hit record lows on Wednesday after its biggest investor, the National Bank of Saudi Arabia, said it could not provide more financing to Credit Suisse. Meanwhile, U.S. PPI data showed headline and core inflation fell more than expected in February. Domestically, New Zealand's economy shrank by 0.6% quarter-on-quarter in the fourth quarter of 2022, the worst contraction since the third quarter of 2021. On an annual basis, the gross domestic product grew 2.2%, a sharp slowdown from 6.4% in the third quarter and below the consensus estimate of 3.3%. Most sectors fell, with financials remaining under pressure. Among individual stocks, Fletcher Building fell 5.6 percent, Spark New Zealand fell 4.1 percent, and Mainforge Ltd. and Mercury NZ Ltd. fell 2 percent and 1.1 percent, respectively.
- NZ: In the fourth quarter of 2022, New Zealand's economy grew by 2.2% year-on-year, which was lower than the 6.4% growth rate in the previous period, but fell short of market expectations of 3.3%. Output in the services sector rose (3.9% vs. 7.5% in the third quarter), while work in the goods-producing sector fell (-2.3% vs. +4.6%). Meanwhile, production in the primary industry contracted slower (-2.6% vs. -2.9%). As a result, GDP in December 2022 increased by 2.4% compared to December 2021.
Today, investors should watch out for the following important data:
- GBP: Consumer Inflation Expectations.
- JPY: Tertiary Industry Activity m/m.
- USD: Capacity Utilization Rate, Industrial Production m/m, Prelim UoM Consumer Sentiment, Prelim UoM Inflation Expectations, and CB Leading Index m/m.
- EUR: Italian Trade Balance, Final CPI y/y, and Final Core CPI y/y.
- CAD: Foreign Securities Purchases, IPPI m/m, aRMPI m/m
KEY EQUITY & BOND MARKET DRIVERS:
Кey factors in the stock and bond market are currently:
- FR: The 10-year OAT yield increased to 2.75% in March, rebounding from a six-week low of 2.69% hit on March 15, as investors digested the ECB's policy decision and continued to monitor the risk of a global banking crisis. The ECB raised its benchmark interest rate by 50 basis points at its March meeting, in line with an earlier pledge to prolong its fight against soaring inflation in the currency bloc. Still, the bank did not indicate its position on future decisions, underscoring uncertainty in the global financial sector amid heightened vulnerabilities at Credit Suisse and the failure of major U.S. banks. On the fiscal front, the French government is expected to push to raise the statutory pension age by two to 64 without a vote in the National Assembly after the Senate voted in favor of the motion despite strong opposition from unions and mass strikes plan of.
- IT: Italy's 10-year BTP yield fell to 4 percent in March, its lowest level in six weeks, as investors digested a 50 basis point rate hike from the European Central Bank and continued to monitor risks of a potential crisis in European banks. The ECB's rate hike was in line with its previous pledge to raise key borrowing costs to the highest level since 2008 to prolong the fight against soaring inflation in the eurozone. Still, the move defies current market expectations for a slowdown in rate hikes after exposure of Credit Suisse's vulnerabilities and U.S. bank failures exposed systemic risks in the global financial system. Meanwhile, the central bank did not signal another rate hike at its next meeting or announce a faster pace of quantitative tightening after the second quarter, boosting demand for higher-yielding Italian BTPs. As a result, the spread between 10-year gilts and Bunds narrowed to 185 basis points after hitting a 192-month high on March 15.
- GE: German 10-year bond yields fell below 2.2 percent, near a six-week low of 2.11 percent touched on March 15, as investors assessed the risk of a 50 basis point rate hike by the European Central Bank in response to a systemic collapse of European banks. The ECB's decision aligns with its previous signals. Still, it defies some of the latest market expectations that rate hikes will slow due to systemic banking risks amid low deposits at Credit Suisse and vulnerability to US bank failures, giving yields a boost. Bring pressure. While emphasizing that it will continue to fight soaring inflation, the central bank said it was ready to provide liquidity and support the EU's financial system. At the same time, surprisingly, the ECB also did not announce the pace of quantitative tightening after the second quarter, despite raising its inflation forecast. As a result, core inflation in the eurozone is expected to hit 4.6 percent this year, higher than previously forecast.
- EU: The European Central Bank raised interest rates by an expected 50 basis points on Thursday, further pushing borrowing costs to their highest level since late 2008, to help moderate stubbornly high inflation in the region. Policymakers also said the euro area banking sector is resilient, with strong capital and liquidity positions. They closely monitor current market tensions while standing ready to respond as necessary to preserve the region's price and financial stability. Stabilize. The interest rates on the main refinancing business and marginal loans and deposits were raised to 3.50%, 3.75%, and 3.00%, respectively. As a result, ECB staff expect inflation to be average of 5.3% in 2023, 2.9% in 2024, and 2.1% in 2025. Meanwhile, underlying price pressures are likely to remain strong, with core inflation forecast to reach 4.6 percent in 2023, up from the December forecast.
- US: U.S. 10-year Treasury yields fell to 3.4% in mid-March, the lowest level in six weeks, as persistent concerns about the stability of the global financial sector increased demand for the safety of U.S. government debt. The potential sale of First Republic Bank amplifies the risk of a banking crisis following the collapse of Signature Bank and SVB. Also, the Swiss National Bank's liquidity support for Credit Suisse relieved European lenders from systemic risk but failed to prevent US bonds from turning to safety again. Meanwhile, the number of U.S. jobless claims in mid-March was much lower than expected, renewing concerns about continued tightness in the labor market. Building permits were also higher than expected, supporting a signal that the economy is overheating.
- US: Stock futures contracts tied to the Dow fell 0.7% on Thursday, while futures contracts tied to the S&P 500 and Nasdaq fell 0.6% and 0.2%, respectively, amid ongoing worries about systemic risk in financial markets. First Republic Bank tumbled more than 30% in premarket trading on news that the private bank was exploring strategic options, including a sale. Shares of other regional banks, including Western Union and Pacific Western, fell 8 percent and 20 percent, respectively. Market volatility came despite Credit Suisse's announcement that it had arranged to borrow 50 billion francs ($53.68 billion) from the Swiss National Bank's liquidity facility. Meanwhile, the ECB stuck to its tightening line despite the turmoil in the banking sector, delivering a widely expected 50 basis point rate hike. The move dashed hopes that the Fed would soon pause rate hikes.
- IT: Italy's annual inflation rate was revised to 9.1% in February 2023 from an initial estimate of 9.2%, falling below 10% in January. This is the lowest inflation rate since September 2022, driven largely by a sharp drop in regulated energy product prices (-16.4% in January compared to -12.0% in January), with non-regulated energy product prices rising more than Small (40.8% compared to 59.3%). Instead, it includes alcohol (15.5 percent versus 14.9 percent), unprocessed food (8.7 percent versus 8.0 percent), tobacco (1.8 percent, unchanged from January), recreation-related services, including repairs and personal care (6.1 percent vs. 5.5%) and transportation-related services (6.4% vs. 5.9%). As a result, annual core inflation excluding energy and unprocessed food rose to 6.3 percent from 6 percent in January, and excluding energy alone, accelerated to 6.4 percent from 6.2 percent, slightly below the preliminary 0.3 percent growth figure.
- CH: The yield on the Swiss 10-year government bond rose to over 1.12% from a 3-month low of 1.03% in the previous session as worries about the European banking system eased, and shares in the Credit Suisse jumped 30% after the bank announced it would borrow up to 50 billion Swiss francs from the Swiss central bank under a covered loan and short-term liquidity facility. Shares of Credit Suisse plunged as much as 31% on Wednesday. Trading for several European banks was halted after the Saudi National Bank ruled out increasing its holding a day after the bank revealed it found "substantial weaknesses in its financial reporting processes for 2022 and 2021. On the monetary policy front, a surprise acceleration in Swiss inflation has raised expectations that the SNB will have to keep rates hikes. Consumer prices in Switzerland increased by 3%.
LEADING MARKET SECTORS:
- Strong sectors: Communication Services, Consumer Discretionary, Information Technology, Industrials.
- Weak sectors: Real Estate, Consumer Staples,
TOP CURRENCY & COMMODITIES MARKET DRIVERS:
Кey factors in the currency and commodities market are currently:
- CAD: The CADUSD hovered around 1.37, still near a five-month low of 3.9 hit on March 1, as concerns about the health of the global banking system weighed on riskier currencies and Canada's heavyweight financial sector. Uncertainty is widespread about the health of international banks, with Credit Suisse remaining less stable despite the liquidity injection from the Swiss National Bank. In contrast, support for First Republic banks is expected to be supported by major US banks. At the same time, the sharp drop in crude oil prices has further weighed on the madman and limited the turnover of Canadian exports. Finally, the Bank of Canada said it had to end its rate hike cycle if the Canadian economy aligned with expectations. At the same time, the US Federal Reserve may continue to raise rates to fight inflation.
- EUR: The euro traded around $1.06 on Thursday after the European Central Bank announced a half-percentage-point hike despite turmoil in the banking sector. ECB President Christine Lagarde said last week that a big rate hike was "very likely," but markets sharply pared back bets on a 50 basis point hike after Silicon Valley Bank collapsed in the US and European bank shares slumped. Earlier in the day, Credit Suisse said it would borrow up to $54 billion from the country's central bank through secured loans and short-term liquidity facilities, providing temporary relief to investors. Still, concerns about broader problems arose as banks adjusted to rapidly rising interest rates.
- GBP: Sterling remained below $1.21 as investors assessed the likely impact of the turmoil in European and U.S. banking systems and persistently high inflation on the outlook for monetary policy. The Bank of England will raise interest rates by 25 basis points next week before ending the policy tightening cycle. At the same time, the U.S. Federal Reserve is likely to continue raising rates to fight inflation, albeit at a slower pace. Elsewhere, British Chancellor of the Exchequer Jeremy Hunt pledged on Wednesday to halve inflation, reduce debt and boost growth, saying Britain would not enter a technical recession this year and that inflation could fall to 2.9% by the end 2023. Hunt also said he expected Britain to meet the fiscal rules set by the government in November.
- USD: The U.S. dollar index climbed above 104.5 on Thursday after gaining 1% in the previous session, boosted by rising demand for safe-haven currencies following the collapse of Silicon Valley Bank and Signature Bank and fresh troubles at Credit Suisse. Investors were concerned about the prospect of a global banking crisis and economic instability, even as the turmoil fueled speculation that major central banks could resort to less aggressive policy tightening to prevent a deep recession. The latest data also showed U.S. annual inflation slowed to 6% in February, while producer price index and retail sales figures were weaker than expected. That boosted expectations that the Fed could soften its stance on inflation, with markets pricing in a modest 25 basis point hike next week.
CHART OF THE DAY:
The CAC 40 pared some gains in afternoon trade to trade around 6930, in line with its European counterparts, as investors focused on banking turmoil and the European Central Bank's monetary policy decision. Credit Suisse said it would borrow up to $54 billion from the country's central bank through secured loans and short-term liquidity facilities. Meanwhile, the ECB raised borrowing costs by 50 basis points and pledged to fight inflation. On the corporate front, Hermès (+2.7%), Laurel (+2.1%), and LVMH (+1.9%) were the biggest gainers. On the other hand, Unibail Rodamco (-2.1%) and Renault (-0.4%) were the biggest losers. Also, shares of Societe Generale (-1.5%), Crédit Agricole (-1.4%), and BNP Paribas (-0.4) continued to fall. Domestically, all eyes will be on the votes on pension reform in the Senate and National Assembly. The 10-year OAT yield increased to 2.75% in March, rebounding from a six-week low of 2.69% hit on March 15, as investors digested the ECB's policy decision and continued to monitor the risk of a global banking crisis. The ECB raised its benchmark interest rate by 50 basis points at its March meeting, in line with an earlier pledge to prolong its fight against soaring inflation in the currency bloc. Still, the bank did not indicate its position on future decisions, underscoring uncertainty in the global financial sector amid heightened vulnerabilities at Credit Suisse and the failure of major U.S. banks. On the fiscal front, the French government is expected to push to raise the statutory pension age by two to 64 without a vote in the National Assembly after the Senate voted in favor of the motion despite strong opposition from unions and mass strikes plan of.
Long-term Channels Trading Strategy: - CAC 40 index -; Chart with time-frame (D1); The primary Resistance is around ~ ( 28063 ), and the primary Support is around ~ ( 2539 ). Therefore, the next most probable price movement is a (down / sideways) trend. *see details on the chart.
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