Credit Suisse Rescued by UBS, Contagion Watch and Fed Decision Up Next (March 17 Market Recap).

March 19, 2023

Credit Suisse Rescued by UBS, Contagion Watch and Fed Decision Up Next (March 17 Market Recap).

Indices

Dow 31,861, -48 or –0.15%.
Nasdaq 11,630, +492 or +4.42%.
S&P 3,916 +55 or +1.42%.
USD10Y 3.395%, -30.0bp or -8.12%.
WTI Crude $66.38 bbl, -$10.30 or –13.4%.

Credit Suisse Rescued by UBS

Today, Sunday, in a deal that surprised no one, except perhaps by the speed in which it was engineered, it was announced that Swiss bank UBS has agreed to buy and thus rescue Credit Suisse in a deal for pennies on the dollar. UBS will pay $3.25 billion dollars for Credit Suisse, which was worth $8 billion at the end of the week. Shareholder value will be cut roughly by 60% and bond holders’ fates remain unknown although one class of debt, so called additional tier 1, will have its value wiped out from $17 billion to zero.

Contagion Watch

First Republic (FRC) stock acted horribly last week despite having access to the Fed’s new lending facility and the news that eleven banks were depositing $30 billion into its coffers to shore up the bank’s liquidity. FRC announced that it will suspend its dividend and is exploring private sales to other banks or private equity firms in its continued quest for additional liquidity and capital.

In the meantime, over the weekend, a consortium of regional banks issued a joint statement imploring the Federal government to insure all deposits regardless of the $250,000 cap for the next two years.

Fed, Your Move

Despite all the handwringing and volatility in the banking sector last week and over the weekend, the CME Fed Watch Tool still shows a 71.6% probability of a 25bp rate hike come Wednesday (as of 4:17pm PDT).

Next Week

While it is a light economic data calendar this week, all eyes will be focused as usual on Fed Chair Jerome Powell and the FOMC’s interest rate decision on Wednesday. Will they raise by +0.25% or is the “pause” finally upon us?

Economic Calendar

Monday – N/A.
Tuesday – N/A.
Wednesday – FOMC Interest Rate Decision and accompanying statement and press conference.
Thursday – Initial Jobless Claims. March Philadelphia Fed Manufacturing Index.
Friday – February Durable Goods, March S&P Flash US Manufacturing and Services PMI.

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March 17 Daily Trading Recap…

Monday – Dow –90 to 31,819, Nasdaq +50 to 11,188, S&P –6 to 3,855, USD10Y -18.0bp to 3.515%.

Seven of eleven S&P sectors traded higher today, led by Real Estate, Utilities, and Health Care
Financials fell 3.7% as today’s market action was dominated by the fallout from the shuttering of Silicon Valley Bank on Friday and Signature Bank on Sunday by Federal Regulators. Late Sunday afternoon/evening, a joint statement was made by the Fed, the Treasury Department and the Federal Deposit Insurance Corporation that all depositors, regardless of amount would be made whole. However, equity holders would be most likely wiped out, bond holders will be fortunate to see any return on their principal and that all senior management of the two banks would be fired.

Tuesday – Dow +336 to 32,155, Nasdaq +239 to 11,428, S&P +63 to 3,919, USD10Y +12.3bp to 3.638%.

All eleven S&P sectors traded up today, led by Communication Services, Technology, and Financials.
The February Consumer Price Index reported in line month-over-month at +0.4%. Year-over-year CPI decreased to +6.0%, down over 40bp month over month.
Regional banks that had been battered the last two days rebounded strongly and the benign inflation data helped longer duration equities in Communication Services and Tech rally as well.

Wednesday – Dow –280 to 31,874, Nasdaq +6 to 11,434, S&P -27 to 3,892, USD10Y -14.6bp to 3.492%.

Seven of eleven S&P sectors traded down today, led lower by Energy, Materials, and Financials.
The February Producer Price Index (PPI) was negative at –0.1% vs expectations of +0.3%. Year-over-year PPI declined to +4.58% down from +5.71% last month.
March Empire State Manufacturing was a disaster at –24.9, the fourth consecutive negative report and the ninth negative print out of the last twelve months.
February Retail Sales were in line at –0.4% vs last month’s +3.2%.
Swiss Bank Credit Suisse was the story of the day, tanking the markets before a late day rally mitigated some of the damage to the indices. The financial sector did not participate in the rally and was down nearly 3%. CS admitted material weakness in their financial reporting over the last two years and their largest shareholder, the Saudi National Bank stated they would not be investing further in the bank.
Late afternoon embattled regional bank, First Republic Bank (FRC) announced it was weighing strategic options, including a possible sale. FRC traded down -21% in the regular session but regained nearly 4% after the announcement in the extended session. S&P and Fitch both downgraded FRC’s credit to junk status.
Earnings: Adobe (ADBE) beat expectations and raised 2023 profit expectations. ADBE traded up +4.6% post close.

Thursday – Dow +372 to 32,246, Nasdaq +283 to 11,717, S&P +38 to 3,960, USD10Y +9.3bp to 3.585%.

Nine of the eleven S&P sectors traded higher, led by Technology, Communication Services, Financials.
Jobless claims dipped down to 192,000 vs 205,000 expected and last week’s slightly revised higher print of 212,000 (originally 211,000). Continuing claims decreased by 29,000 to 1.684 million.
The March Philadelphia Fed Manufacturing Index was almost as bad as NY’s print yesterday: down –23.2, the seventh consecutive negative number and like NY, the ninth negative print out of the last twelve months.
The First Republic Bank (FRC) saga continues…eleven banks pledged to deposit a total of $30 billion at FRC. The stock opened down -33% before the rescue plan was announced and then rallied to close up +10% on the day. However, the stock is down nearly –17% in after-hours trading as FRC also announced the suspension of their dividend.
The Credit Suisse (CS) saga continues…Swiss National Bank announced a $53 billion loan to CS as well as establishing a short-term liquidity facility. Swiss National Bank lost $141 billion last year.
Earnings: FedEx (FDX) beat earnings, missed revenue and boosted 2023 projections: FDX traded up +11.7% post close.
Bank Term Funding Program (BTFP) update…$11.9 billion has been borrowed so far from the emergency lending facility that was announced on Sunday. Further, even more banks have accessed their traditional source of liquidity, the Fed discount window, to the tune of $153 billion. The BTFP must be repaid within one year while the discount window loans are good for up to 90 days.

Friday – Dow –384 to 31,861, Nasdaq –87 to 11,630, S&P –43 to 3,916, USD10Y -19.0bp to 3.395%.

All eleven S&P sectors traded down today, led lower by Financials, Real Estate, and Industrials.
March Consumer Sentiment slid to 63.4 vs 67 expected and vs last month’s 67 print.
The First Republic Bank (FRC) saga continues…FRC traded down –32.8% in the regular session and another –15.3% in the extended session after announcing they would seek to raise capital via share sales to banks or private equity.
The Credit Suisse (CS) saga continues…CS traded down nearly -7% during the regular session today.

Disclaimer: This is not a recommendation to buy or sell any of the securities listed above. I personally, or a family member whose account I control, have positions in the following securities/assets…Bitcoin, Cardano, Chainlink, Ethereum, ETHE, GBTC, and TSLA.