Market Turmoil As Credit Suisse Woes Spark Financial Crisis Concerns

Fresh on the heels of the Silicon Valley Bank (SVB) collapse a week earlier, investor attention turned to Credit Suisse last week after it delayed the release of its annual results after uncovering material weakness in its financial reporting controls[1]. This ultimately led to the Swiss National Bank providing Credit Suisse with significant liquidity assistance after its largest investor, the Saudi national Bank announced that it would not provide additional capital; UBS has since agreed to acquire Credit Suisse it a cut-price deal although that has done little to boost confidence so far. The furore surrounding Credit Suisse and fears of contagion led to significant equity market volatility, particularly in the UK where its considerable banking and insurance exposure led the FTSE100 to a weekly decline of -5.3%. Gilt yields also sank across the curve with the closely monitored 10-year security falling by 36 basis points (bps) to 3.28%.

Despite the events unfolding at Credit Suisse, the European Central Bank pressed ahead with a 50 bp rate hike at its monetary policy meeting last week in its latest attempt to try and curb inflation[2]. The MSCI Europe ex UK index declined by -3.5% with the banking sector seeing most of the heavy selling. Meanwhile in the US, equity markets actually ended the week in positive territory although there was considerable divergence between its underlying sectors. The S&P500 and NASDAQ ended the week +1.4% and +4.4% higher respectively, reflective of investors now pricing in lower interest rates towards the end of the year. Moving to Asia, the Nikkei 225 in Japan fell by -2.9% on the back of weakening investor sentiment whilst the Shanghai Composite added +0.6% on growing optimism relating to potential additional monetary stimulus from the government.

Regarding commodities, oil prices endured their biggest weekly decline of the year with Brent Crude falling by -12.3% to $72.63 a barrel. Growing concerns of recession and the negative impact that would have on demand were likely reasons behind the sharp retreat. Copper also faced selling pressure, albeit not to the same degree as oil with the metal declining by -3.1% to $8,573 a tonne. One commodity to benefit from the fallout in equity markets was gold as investors sought safe haven assets. The precious metal rose by +5.5% to $1,961 an ounce in what was one of its best weeks for three years.[3]

Week Ahead

All eyes will be on the Federal Reserve this week as it hosts its latest policy meeting on Wednesday. Expectations are now for an additional 25bps increase in its base rate having been pared back during the past week’s banking sector turmoil. The Bank of England’s Monetary Policy Committee are also meeting this week whilst a number of crucial datapoints including CPI inflation and Purchasing Manager Indices (PMI’s) are published throughout the week. Flash PMI’s are also due from the Eurozone this week whilst German research institute ZEW releases its key economic sentiment indicator for the Eurozone on Tuesday. In Japan, Core CPI data is released on Thursday although there are no major macro figures due from China on this occasion.[4]

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[1] T. Rowe Price, 20/03/23

[2] European Central Bank, 20/03/23

[3] Refinitiv, 20/03/23

[4] Forex Factory, 20/03/23

SJP Approved 20/03/23