Macro data has taken a backseat this week with a string of bank emergencies that started with the collapse of crypto bank Silvergate. This was soon followed by the Silicon Valley Bank – a favourite of tech start-ups – and then Signature Bank, whose strong connections to cryptocurrencies spooked depositors into a bank run.
All these, however, have been regional banks relatively far removed from the global banking systems. The latest bank to fall into disarray is the already-embattled Credit Suisse, an institution that is also one of the primary banks that the Federal Reserve deals with.
Credit Suisse has said that it will borrow up to 50 billion Swiss francs to keep the boat afloat after its share prices sunk after its financial report admitted to “material weakness”, right before its biggest shareholder, the Saudi National Bank, announced that it would “absolutely not” increase its shares of the bank, currently at 9.8%, past 10%.
Markets are flocking to safety, with both the dollar and gold – two traditionally opposing assets – surging in the past week. This comes even as punters shift their bets towards slowing monetary policy in the face of a financial crisis, with around 33% betting on a no hike (up from 0% a week ago) and 67% betting on a 25-point hike, up from 21% a week ago.
Not all market movement has been defensive however, with the tech-heavy Nasdaq edging upwards on a dovish outlook for the Fed.
While banks including JP Morgan saw a slight increase in stock price after an influx of depositors looking for a “safer” place to park their money after SVB’s collapse, contagion woes are now abound after the news about Credit Suisse. Banks, predictably, have taken a hit with the Dow Jones Banks Index down almost 15% in the past 5 days.
Now the big question: will there be a banking crisis? Banks have scrambled to protect themselves against a spreading spill. The U.S. authorities have reacted swiftly, staging a major intervention to protect SVB’s customers. Commercial banks that trade with Credit Suisse are also snapping up credit default swaps; while some are rejecting requests to take over derivatives contracts whose counterparty is the Swiss bank.
Meanwhile, investor Michael Burry, famous for predicting and shorting the 2008 subprime mortgage collapse, has tweeted that he is “not seeing true danger”, as the crisis will resolve quickly thanks to the U.S. Treasury Department’s emergency plan.
All investors are now advised to pay close attention to their positions, as any major news will surely induce volatility (the VIX has surged above 30 for the first time since last October) that might overshadow macro releases.
Investors are reminded to look out for the Fed’s next interest rate decision, which will be announced on Wednesday, 22 Mar at 21:00 (GMT+3).
As a friendly reminder, do keep an eye on market changes, control your positions, and manage your risk well.