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SVB, Signature Bank collapses weigh on markets

Good morning


European equities faced large losses yesterday and Asian markets followed suit overnight despite the US announcements that deposits are safe following the collapse of SVB and New York based Signature Bank. It seems the risk of contagion has not gone away despite efforts from government. US equities held up better, perhaps following the adjustment in market pricing of US rate rises. Where a 50bps rise in March had been expected, this has dropped, some now looking at 25bps, some at no change, while Nomura are looking for a 25bps cut. Peak rates pricing suggests something nearer to 5% from 6%.


After a period of fairly standard comments, any word from Fed officials will be closely watched, Bowman speaks this evening. Before then we have US CPI data which, given Powell’s recent hawkish comment and now the US banking issues, could be more volatile than ever. The US dollar has weakened against GBP, having hit a low last week around 1.1800, it reached 1.2200 late yesterday. Similarly EURUSD hit a low last week of 1.0525, and traded up to almost 1.0750 yesterday.


Between GBP and EUR, it was GBP that led the way with GBPEUR trading up from 1.1300 to the 1.1365 area, while GBPAUD traded above 1.8300 at one stage, levels not seen since Russia invaded Ukraine. I wonder whether comparative GBP strength came from news that HSBC would buy the UK arm of SVB. UK employment data this morning certainly hasn’t has a lasting impact on GBP after an initial limited push higher,


I’d paid little attention initially to the news that members of SVB’s board sold decent chunks of stock holdings a week or two ago but this does look rather sinister. There is also the question of whether SVBs downfall was bad luck due to interest rate rises or poor risk management. The latter looks the more likely. Law suits from disgruntled shareholders are already being filed.


UK PM Sunak hasn’t minced his words, saying China is the biggest state threat to our economy and represents a challenge to world order that must be taken seriously. He was speaking as US, Australia and UK announced their joint plan on nuclear submarines under the AUKUS deal. There is some talk that President Xi is looking to meet Ukraine’s Zelensky after a visit to Moscow, one hopes of course he’ll find a road to peace but I don’t think his plan would be acceptable to Ukraine, no doubt erring on the side of Russian control of Eastern Ukraine.


For the time being we remain focussed on the US banking issue and the impact it could have on USD. If Nomura are right, USD has to weaken significantly. While at the moment a rate cut remains unlikely, bear in mind we are in the very early stages of this crisis and a lot can change in a week or so.


- 12.30 US CPI

- 21.20 Feds Bowman speaks

- 23.50 BoJ minutes

- 02.00 China retail sales, industrial production


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