Week in review: Banks in spotlight
Major news on failure of banks on both sides of the Atlantic have shaken markets in past two weeks. Following Silicon Valley Bank and First Republic Bank, the European giant Credit Suisse was next to fail on large part of its liabilities (e.g., $17bn of debt was voided). As of now, the second largest Swiss bank, UBS, is set to take over Credit Suisse for a worryingly low price of $3.25bn (market capitalization of Credit Suisse was c.$12.3bn in early-February 2023).
In response, the monetary authorities from the US and Europe have pledged to provide banks with liquidity, implying renewed expansion of their balance sheets (the US Treasury has already approved $25bn for SVB from the Exchange Stabilization Fund). Meanwhile, private banks have also acknowledged the elevated system-wide risks. The sector giants like JPMorgan Chase and Bank of America have provided an aggregate of $30bn rescue package for First Republic Bank. However, the move was not sufficient to calm investors, as First Republic Bank stock (FRC) remains down 81.3% m/m.
As Federal Reserve is set to meet on Wednesday this week, the monetary decision is expected to be more dovish than previously expected. Markets are now pricing in a 25bps hike with 72% probability and no hike – with 28% probability.
In light of these developments, investors have shifted towards quality equities and safe haven assets, such as gold. This caused large caps to outperform past week (e.g., S&P 500 rallied 1.4% w/w, while Russell 2000 declined 2.6), while gold just missed to hit a $2,000 mark.
Week ahead
Macroeconomics: The list of this week’s major macroeconomic news includes FOMC meeting, BoE monetary policy meeting, UK CPI, and Global preliminary PMIs.
Earnings: The list of this week’s major earnings releases includes Tencent (TME), Nike (NKE), GameStop (GME), Accenture (ACN), and General Mills (GIS).
