Fresh Financial Crisis Fears as Banking Stocks Plunge

Fears of a 2008-style financial crisis swung back into sharp focus yesterday with shares in Credit Suisse suspended after collapsing to fresh record lows. The bank, which has been rocked by capital outflows and liquidity concerns over the last year, saw its stock price plunge more than 25% yesterday as the group’s largest backer Saudi National Bank said it would offer no further financial assistance. Late on Wednesday, however, Credit Suisse announced that it had secured emergency funding of 50 billion CHF from the SNB to strengthen its liquidity position. While the news has improved sentiment, contagion fears and speculation over which banks might be next to struggle, are haunting markets as we head to the weekend.

Key Factors for Today

- USD remains weak as financial fears take hold – US retail sales contracted in Feb following Jan spike
- Markets in disarray as Credit Suisse shares collapse before last minute deal
- ECB on watch today – traders expecting smaller hike and less hawkish outlook
- Metals higher, but volatile moves – crude hits 2021 levels on risk aversion and fresh EIA inventories build

Coming Up

- USD – Unemployment Claims
- EUR – ECB Meeting
- USD – Philly Fed Manufacturing

Equities Recover on Weaker US CPI

Equities prices were heavily lower across the board yesterday. The FTSE saw its largest single-day loss since the pandemic began, with similar moves in the DAX. Despite the credit Suisse deal, investor uncertainty remains at elevated levels and markets are vulnerable to fresh losses on any negative newsflow. With contagion fears spreading globally banking stocks remain highly vulnerable to further downside shocks as traders speculate on which banks will be next to run into trouble. Today’s ECB meeting will now be closely watched with market pricing swinging in favour of a smaller .25% rate hike.

EUR Weaker Ahead of ECB

A better tone to risk markets across the European open on Thursday is translating into better demand for the Aussie which has been the best performer so far today. EUR has been a little lower ahead of the ECB later given traders’ less-hawkish expectations against a backdrop of ongoing market turmoil. Traders had widely been expecting the bank to deliver its well-signalled .5% hike and while this might still transpire, consensus has shifted in favour of a smaller hike and a less hawkish outlook from the bank. Markets will be particularly eager to hear how the ECB addresses liquidity concerns within the banking sector, especially given the fresh issues with Credit Suisse.

Metals Rally, Crude Crumbles

In the metals and commodities space, gold and silver saw volatile action yesterday with both metals rallying sharply before softening a little later in the session. With risk flows neurotic at the moment, metals volatility looks likely to continue though should USD head lower into next week there is room for metals to push higher. Crude prices plunged by almost 10% yesterday, trading to their lowest levels since late 2021 before bouncing a little off the lows. Yesterday, the EIA reported a 1.6 million barrel surplus, well above the 0.2 million barrel decline forecast, adding further pressure to crude futures.