UBS In Talks To Acquire Credit Suisse, BlackRock Denies Takeover Bid

Futures Jump After Biden Says Trump's China Tariffs Under Consideration US stock futures advanced for a second day after staging a furious rally late on Friday having slumped into a bear market just hours earlier, after President Joe Biden said China tariffs imposed by the Trump administration were under consideration, although concerns about hawkish central banks and record Covid cases in Beijing continued to weigh on the sentiment.  Contracts on the S&P 500 were up 1% by 7:15 a.m. in New York, trimming earlier gains of as much as 1.4% following remarks from Christine Lagarde that the European Central Bank is likely to start raising interest rates in July and exit sub-zero territory by the end of September which sent the euro sharply higher and hit the USD. Meanwhile, Beijing and Tianjin continue to ramp up Covid restrictions as cases climbed. Nasdaq futures also jumped, rising 1.1%. Europe rose 0.6% while Asian stocks closed mostly in the green, with Nikkei +1% and Hang Seng -1.2%. The dollar and Treasuries retreated, while bitcoin jumped to $30,500 as the crypto rout appears over. Traders interpreted Biden’s comments that he’ll discuss the US tariffs on Chinese imports with Treasury Secretary Janet Yellen when he returns from his Asia trip as a signal there could be a reversal of some Trump-imposed measures, sparking a risk-on rally.  “Today’s appetite for risk has been sparked by the US President’s announcement that trade tariffs imposed on China by the previous Trump administration will be discussed,” said Pierre Veyret, a technical analyst at ActivTrades. “Investors see this as a possible de-escalation of the trade war between the two economic superpowers, and this has revived trading optimism towards riskier assets.” Among the notable movers in premarket trading, VMware surged 19% after Bloomberg News reported that Broadcom is in talks to acquire cloud-computing company; Broadcom fell 3.5% in premarket trading. Here are some other notable premarket movers: Software stocks, such as Oracle (ORCL US), Splunk (SPLK US), ServiceNow (NOW US), Check Point Software Technologies (CHKP US), are in focus after the report on Broadcom and VMware setting up for a blockbuster tech deal. Antiviral and vaccine stocks rise in US premarket trading amid spreading cases of the monkeypox virus. SIGA Technologies (SIGA US) jumps 39%; Emergent BioSolutions (EBS US) rises 15%, Chimerix (CMRX US) gains 15%, Inovio Pharmaceuticals (INO US) +13% Dow (DOW US) shares fall as much as 1.3% premarket after Piper Sandler downgraded the chemicals maker to neutral from overweight, along with peer LyondellBasell (LYB US), amid industry concerns. TG Therapeutics (TGTX US) shares are down 3.3% premarket after falling 11% on Friday, when BofA started coverage on the biotech company with an underperform rating and $5 price target. Upwork (UPWK US) could be in focus as RBC Capital Markets analyst Brad Erickson initiates coverage of the stock with a sector perform recommendation, saying some near-term negatives for the online recruitment services firm are well discounted. US stocks have been roiled in the past two months by concerns the Fed's tightening will push the economy into a recession. A late-session rebound lifted the market from the session’s lows on Friday, though the S&P 500 still capped a seventh straight week of losses - the longest since 2001 - and briefly dipped into bear market territory, while the Dow dropped for 8 consecutive weeks, the longest stretch since 1923! “As we have seen time and time again recently, any attempted rallies appear to be short-lived with the backdrop of macroeconomic uncertainty, and any bullish breakouts have failed to endure with overall market sentiment biased toward the bears,” said Victoria Scholar, head of investment at Interactive Investor. The string of weekly losses has seen the S&P 500’s forward price-to-earnings ratio drop to 16.4, near the lowest since April 2020. This is below the average level of 17.04 times seen over the past decade, making the case for bargain hunters to step in. Separately, Biden said the US military would intervene to defend Taiwan in any attack from China, comments that appeared to break from the longstanding US policy of “strategic ambiguity” before they were walked back by White House officials. Meanwhile, his administration announced that a dozen Indo-Pacific countries will join the US in a sweeping economic initiative designed to counter China’s influence in the region. Minutes of the most recent Fed rate-setting meeting will give markets insight this week into the central bank’s tightening path. St. Louis Fed President James Bullard said the Fed should front-load an aggressive series of rate hikes to push rates to 3.5% at year’s end, which if successful would push down inflation and could lead to easing in 2023 or 2024 In Europe, the Stoxx 50 rose 0.3%. The FTSE 100 outperformed, adding 0.9%, FTSE MIB lags, dropping 1.1%. Energy, miners and travel are the strongest performing sectors. European energy shares vie with the basic resources sector to be the best-performing group in the Stoxx Europe 600 benchmark on Monday as oil stocks rise with crude prices, while Siemens Gamesa rallies after Siemens Energy made a takeover offer. Shell rises 1.7%, BP +2.4%, TotalEnergies +2.1%. Elsewgere, the Stoxx Europe Basic Resources sub-index rallies to the highest level since May 5 to lead gains in the wider regional benchmark on Monday as metals rise amid better demand outlook. Aluminum, copper and iron ore extended rebound after China cut borrowing rates last week, dollar weakened and as investors weighed outlook for lockdown relief in Shanghai. The euro rose to its highest level in four weeks and most of the region’s bonds fell after European Central Bank President Christine Lagarde said the ECB is likely to start raising interest rates in July and exit sub-zero territory by the end of September. Here are the most notable European movers: Siemens Gamesa shares gain as much as 6.7% after Siemens Energy made an offer to acquire the shares in the wind-turbine maker it does not own. Kingfisher shares advance as much as 4.9% after the B&Q owner reported 1Q sales that beat estimates and announced plans for a further GBP300m share buyback. Deutsche EuroShop shares jump as much as 44% after Oaktree and CURA offered to acquire the German retail property company in a deal valuing it at around EU1.39b. Moonpig Group gains as much as 14% as Jefferies analysts say its plan to buy Smartbox Group UK is a good use of the online greeting card company’s strong cash generation. Kainos Group shares jump as much as 25%, as Canaccord Genuity raises the stock’s rating to buy from hold following FY results, saying cost-inflation headwinds are priced in. Intertek shares fall as much as 5.3%, with Stifel cutting its rating on the company to hold from buy, saying none of the key elements of its positive thesis are still intact. Leoni shares drop as much as 7.3% after the wiring systems manufacturer said it was in advanced talks on further financing. Earlier in the session, Asian stocks were mixed as traders assessed Chinese authorities’ efforts to support the economy amid ongoing concerns over its Covid situation. The MSCI Asia Pacific Index was up 0.4%, supported by healthcare and industrials, after paring an early gain of as much as 0.7%. Japanese stocks outperformed and US index futures advanced.  Chinese shares slid after Beijing reported a record number of coronavirus cases, reviving concerns about lockdowns. Covid concerns offset any positive impact from last Friday’s greater-than-expected reduction in a key interest rate for long-term loans in an effort to counter weak demand. Investors may be turning more upbeat on Asian stocks, with the regional benchmark beating global peers last week by the most in more the two years, snapping a streak of six weekly losses. Still, the region faces the same worries about inflation and rising US interest rates that have been rattling markets around the world this year. “The energy crisis in the EU and policy tightening in the US, combined with China’s economic soft patch” are potential headwinds for Asian equities and may lead to “weak external demand for more export-oriented economies like Taiwan and Korea,” Soo Hai Lim, head of Asia ex-China equities at Barings, wrote in a note. Japanese equities climbed as US President Joe Biden’s comments during his visit to the country lifted market sentiment. Biden said a recession in the US isn’t inevitable, and reaffirmed close ties between the two countries. He also said China tariffs imposed by the Trump administration were under consideration, helping to lift regional stocks.  The Topix Index rose 0.9% to 1,894.57 as of market close, while the Nikkei advanced 1% to 27,001.52. Tokio Marine Holdings contributed the most to the Topix Index, increasing 7.6%. Out of 2,171 shares in the index, 1,681 rose and 415 fell, while 75 were unchanged. Defense stocks also got a boost after Prime Minister Fumio Kishida said President Biden supports Japan’s plan for an increase in its defense budget Stocks in India mostly declined after the central bank chief said the Reserve Bank is taking coordinated action with the country’s government to tackle inflation and a few interest rate hikes will be in store in coming months. His comments came soon after the government unveiled measures that will cost the exchequer $26 billion and will probably force the government to issue more debt to bridge the yawning budget deficit. The S&P BSE Sensex ended flat at 54,288.61 in Mumbai after giving up an advance of as much as 1.1%. The NSE Nifty 50 Index dropped 0.3%, its third decline in four sessions. Gauges of mid-sized and small stocks also plunged 0.3% and 0.6%, respectively. Out of the 30 stocks in the Sensex index, 20 advanced while 10 ended lower, with Tata Steel being the biggest drag. Eleven of 19 sector sub-indexes compiled by BSE Ltd. declined, led by metal stocks. Steel stocks plunged after the new rules imposed tariffs on export of some products. Auto and capital stocks were the best performers.  Investors remain wary of the policy decisions the central bank could take in the near-term to tackle in rising inflation, according to Arafat Saiyed, an analyst with Reliance Securities. “Changes in oil prices and amendments to import and export duties might play a role in assessing the market’s trajectory.” In rates, Treasuries dropped as investors debate the Federal Reserve’s tightening path amid mounting worries about an economic slowdown. US bonds were cheaper by 3bp-5bp across the curve with belly leading declines, underperforming vs front- and long-end, following weakness in bunds. 10-year yield around 2.83%, higher by ~5bp on day, and keeping pace with most European bond markets; belly-led losses cheapen 2s5s30s fly by ~1.5bp on the day. US IG credit issuance slate empty so far; $20b-$25b is expected this week, concentrated on Monday and Tuesday. European fixed income faded an initial push higher after Lagarde’s comments while money markets up rate-hike bets. Bund futures briefly trade above 154 before reversing, cash curve bear-flattens with the belly cheapening ~6bps. Peripheral spreads tighten to Germany, 10y Bund/BTP spreads holds above 200bps. In FX, the Bloomberg Dollar Spot Index fell as the greenback traded weaker against all of its Group-of-10 peers. The euro jumped to a session high of $1.0635 and bunds reversed an advance after ECB President Christine Lagarde said the central bank is likely to start raising interest rates in July and exit sub-zero territory by the end of September. The EUR was also bolstered by Germany IFO business confidence index rising to 93.0 in May vs estimate 91.4. The Aussie and kiwi were among the pest G-10 performers as they benefitted from Biden’s comments about the tariffs on China. Aussie was also supported after the Labor Party won the weekend election and is increasingly hopeful of gaining enough seats to form a majority government.  The pound advanced against the dollar, touching the highest level since May 5, amid broad-based greenback weakness. While asking prices rose to a new record for the fourth-straight month, there are signs the housing market is slowing, according to Rightmove. Yen steadied after gains last week as traders sought clues on the global economy. Japanese government bonds were mostly higher. The purchasing power of the yen fell to a fresh half-century low last month. In commodities, WTI rose 1.1% to trade just below $112. Most base metals are in the green; LME aluminum rises 1.4%, outperforming peers. LME nickel lags, dropping 4.2%. Spot gold climbs roughly $18 to trade around $1,865/oz Looking at today's calendar, at 830am we get the April Chicago Fed Nat Activity Index (est. 0.50, prior 0.44). CB speakers include the Fed's Bostic, ECB's Holzmann, Nagel and Villeroy and BoE's Bailey. Market Snapshot S&P 500 futures up 0.6% to 3,922.50 STOXX Europe 600 up 0.6% to 433.69 MXAP up 0.4% to 165.23 MXAPJ little changed at 539.33 Nikkei up 1.0% to 27,001.52 Topix up 0.9% to 1,894.57 Hang Seng Index down 1.2% to 20,470.06 Shanghai Composite little changed at 3,146.86 Sensex up 0.4% to 54,556.08 Australia S&P/ASX 200 little changed at 7,148.89 Kospi up 0.3% to 2,647.38 German 10Y yield little changed at 0.97% Euro up 0.5% to $1.0622 Brent Futures up 0.9% to $113.61/bbl Gold spot up 0.7% to $1,859.91 U.S. Dollar Index down 0.63% to 102.50 Top Overnight News from Bloomberg President Joe Biden said the US military would intervene to defend Taiwan in any attack from China, some of his strongest language yet seeking to deter Beijing from an invasion The Biden administration announced that a dozen Indo-Pacific countries will join the US in a sweeping economic initiative designed to counter China’s influence in the region, even as questions remain about its effectiveness The US Treasury Department is expected to tighten sanctions this week on Russia, threatening about $1 billion owed to bondholders for the rest of this year and putting the country once again on the edge of default The ECB is poised to get the power to oversee so-called transition plans by 2025, in which lenders map out their path to a carbon-neutral future. Yet several national officials who sit on the ECB’s supervisory board are skeptical that climate risks merit new rules to address them, and some are wary that the initiative exceeds the central bank’s mandate Russia is considering a plan to ease a key control on capital flows which has helped drive the ruble to the highest levels in four years as the rally is now threatening to hurt budget revenues and exporters Natural gas prices in Europe fell as much as 5.6% to the lowest level since the start of the war in Ukraine, as storage levels across the continent rise to near-normal levels As the biggest selloff in decades shook the world’s bond markets this year, some extraordinarily long-dated debt went into free fall, tumbling even more than Wall Street’s usual models predicted. To Jessica James, a managing director with Commerzbank AG in London, it wasn’t a surprise. In fact, it was validation A more detailed look at global markets courtesy of Newsquawk APAC stocks were mixed as momentum waned due to China's COVID woes and record Beijing infections. ASX 200 was just about kept afloat before ebbing lower after initial strength in mining names and the smooth change of government in Australia. Nikkei 225 advanced at the open with Tokyo said to be planning to revive its travel subsidy plan for residents. Hang Seng and Shanghai Comp were pressured by ongoing COVID concerns after Beijing extended its halt of dining in services and in-person classes for the whole city, as well as reporting a fresh record of daily COVID infections, while Shanghai restored its cross-district public transport on Sunday but ordered supermarkets and shops in the central Jingan district to shut and for residents to stay home until at least Tuesday Top Asian News Beijing reported 83 new symptomatic cases and 16 new asymptomatic cases for May 22nd with the city's total new cases at a new record, according to Bloomberg. It was also reported that thousands of Beijing residents were relocated to quarantine hotels due to a handful of infections, according to the BBC. Beijing is mulling easing its hotel quarantine requirement to one week in a hotel and one week at home from a previous hotel requirement of ten days and one week at home for international travellers, according to SCMP. Shanghai reported 570 new asymptomatic cases, 52 asymptomatic cases, 3 new COVID-related deaths and zero cases outside of quarantine, according to Reuters. Shanghai’s central district of Jingan will require all supermarkets and shops to close, while residents will be required to stay at home and conduct mass testing from May 22nd-24th, according to Reuters. China NHC Official says the COVID situation, overall, is showing a steady declining trend. Japanese PM Kishida said it is very disappointing that China is unilaterally developing areas in the East China Sea when borders are not yet set which Japan cannot accept, while it has lodged a complaint against China through diplomatic channels, according to Reuters. Japanese PM Kishida told US President Biden that they must achieve a free and open Indo-Pacific together, while President Biden said the US is fully committed to Japan's defence and that the IPEF will increase cooperation with other nations and deliver benefits to people in the region, according to Reuters. US-South Korea joint statement noted they agreed to discuss widening the scope and scale of joint military exercises and the US reiterated its commitment to defending South Korea with nuclear, conventional and missile defence, as well as reaffirmed its commitment to deploy strategic military assets in a timely and coordinated manner as necessary. The sides also condemned North Korea’s missile tests as a grave threat and agreed to relaunch a high-level extended deterrence strategy and consultation group at the earliest date, while they noted the path to dialogue with North Korea remains open and called for a resumption of negotiations, according to Reuters. US President Biden said the US-South Korea alliance has never been stronger and more vibrant. President Biden added they are ready to strengthen the joint defence posture to counter North Korea and are ready to work toward the complete denuclearisation of North Korea, while he offered vaccines to North Korea and said he would meet with North Korean leader Kim if he is serious, according to Reuters. South Korean President Yoon said North Korea is advancing nuclear capabilities and that US President Biden shares grave concerns regarding North Korea’s nuclear capabilities, while Yoon said they discussed the timing of possible deployment of fighter jets and bombers, according to Reuters. European bourses are mixed/modestly-firmer, Euro Stoxx 50 +0.3%, as the initial upside momentum waned amid fresh China COVID updates and hawkish ECB commentary. Note, the FTSE MIB is the noted underperformer this morning, -1.0%, amid multiple large-cap names trading ex-divided. Stateside, futures are firmer but similarly off best levels, ES +0.5%, with recent/familiar themes very much in focus ahead of a thin US-specific docket. XPeng (XPEV) Q1 2022 (USD): EPS -0.32 (exp. -0.30), Revenue 1.176bln (exp. 1.16bln); Vehicle Deliveries 34.56k, +159% YY. -2.8% in pre-market JPMorgan (JPM) has reaffirmed its adjusted expenses guidance; credit outlook remains positive; sees FY22 NII USD 56bln (prev. USD 53bln) Top European News EU’s infectious-disease agency is to recommend member states prepare strategies for possible vaccination programmes to counter increasing monkeypox cases, according to FT. It was also reported that Austria confirmed its first case of monkeypox and that Switzerland also confirmed its first case of monkeypox in the canton of Bern, according to Reuters. EU policymakers are reportedly renewing efforts to push for real-time databases of stock and bond trading information as they believe that a 'consolidated tape' will make EU exchanges more attractive for investors, according to FT. EU Commission has proposed maintaining EU borrowing limits suspension next year amid the war in Ukraine; expects to reinstate limits in 2024; Germany supports the suspension. Fixed Income Bunds and Eurozone peers underperform as ECB President Lagarde signals end of negative rates by September. 10 year German bond nearer 153.00 having topped 154.00, Gilts around 1/4 point below par after trading flat at best and T-note shy of 120-00 within 120-03+/119-21+ range. EU NG issuance covered 1.38 times and Austria announces leads for 2049 Green syndication. In FX Euro joins Kiwi at the top of G10 ranks as President Lagarde chimes with end of NIRP by Q3 guidance, EUR/USD sets fresh May peak near 1.0690. Bulk of NZIER shadow board believe RBNZ will deliver another 50bp hike on Wednesday, NZD/USD hovers comfortably above 0.6450 in the run up to NZ Q1 retail sales. DXY in danger of losing 102.000+ status as Euro revival boosts other index components. Aussie up with price of iron ore and extended Yuan recovery gains with change of PM and Government regime taken in stride; AUD/USD probes 0.7100, USD/CNH not far from Fib support sub-6.6500, USD/CNY a tad lower. Sterling eyes 1.2600 awaiting BoE Governor Bailey at a PM panel discussion, Loonie and Nokkie glean traction via firm WTI and Brent, USD/CAD under 1.2800, EUR/NOK beneath 10.3000. Lira languishing after CBRT survey showing higher end 2022 forecasts for Turkish CPI, current account deficit and USD/TRY circa 17.5690 vs just shy of 16.0000 at present. Commodities WTI and Brent are firmer and in-proximity to session highs amid USD action offsetting the earlier drift with risk sentiment/China's mixed COVID stance. Currently, the benchmarks are just off highs of USD 111.96/bbl and USD 114.34/bbl respectively, vs lows of 109.50 and 111.97 respectively. Saudi Arabia signalled it will stand by Russia as a member of OPEC+ amid mounting pressure from sanctions, according to FT. Iraq’s government aims to set up a new oil company in the Kurdistan region and expects to enter service contracts with local oil firms, according to Reuters. Iran’s Oil Minister agreed to revive the pipeline laying project to pump Iranian gas to Oman which was stalled for nearly two decades, according to IRNA. Qatari Foreign Minister Sheikh Mohammed bin Abdulrahman Al Thani said Iran’s leadership has matters under review regarding “the Iranian nuclear file” and said that pumping additional quantities of Iranian oil to the market will help stabilise crude prices and lower inflation, according to Al Jazeera TV. India cut its excise duty on petrol by INR 8/litre and diesel by INR 6/litre which will result in a revenue loss of about INR 1tln for the government, while Indian Finance Minister Sitharaman announced subsidies on cooking gas cylinders, as well as cuts to custom duties on raw materials and intermediaries for plastic products, according to Reuters. Indian oil minister says oil remaining at USD 110/bbl could lead to bigger threats than inflation, via CNBC TV18. Central Banks ECB's Lagarde says based on the current outlook, we are likely to be in a position to exit negative interest rates by the end of the third quarter; against the backdrop of the evidence I presented above, I expect net purchases under the APP to end very early in the third quarter. This would allow us a rate lift-off at our meeting in July, in line with our forward guidance. The next stage of normalisation would need to be guided by the evolution of the medium-term inflation outlook. If we see inflation stabilising at 2% over the medium term, a progressive further normalisation of interest rates towards the neutral rate will be appropriate. ECB President Lagarde indicated that July is likely for a rate increase as she noted that they will follow the path of stopping net asset purchases and then hike interest rates sometime after that which could be a few weeks, according to Bloomberg. Bundesbank Monthly Report: German GDP is likely to increase modestly in Q2 from current standpoint. Click here for more detail. RBI Governor Das says, broadly, they want to increase rates in the next few meetings, at least at the next one; cannot give a number on inflation at present, the next MPC may be the time to do so. CBRT Survey (May), end-2022 Forecasts: CPI 57.92% (prev. 46.44%), GDP Growth 3.3% (prev. 3.2%), USD/TRY 17.5682 (prev. 16.8481), Current Account Balance USD -34.34bln (prev. USD -27.5bln). US Event Calendar 08:30: April Chicago Fed Nat Activity Index, est. 0.50, prior 0.44 12:00: Fed’s Bostic Discusses the Economic Outlook 19:30: Fed’s George Gives Speech at Agricultural Symposium DB's Jim Reid concludes the overnight wrap After a stressful couple of hours in front of the football yesterday afternoon, there's not too much the market can throw at me this week to raise the heart rate any higher than it was for the brief moments that I thought Liverpool were going to win the Premier League from a very unlikely set of final day circumstances. However it is the hope that kills you and at least we have the Champions League final on Saturday to look forward to now. There will be a lot of market water to flow under the bridge before that. This all follows a fascinating end to last week with the S&P 500 in bear market territory as Europe went home for the weekend after the index had fallen -20.6% from its peak going into the last couple of hours of another brutal week. However a sharp late rally sent the index from c.-2.3% on the day to close +0.01%. There was no catalyst but traders clearly didn’t want to go home for the weekend as lightly positioned as they were. Regardless, this was the first time we’ve seen seven successive weekly declines in the index since the fallout from the dotcom bubble bursting in 2001. Watch out for my CoTD on this later. If you’re not on my daily CoTD and want to be, please send an email to jim-reid.thematicresearch@db.com to get added. For what it's worth the Dow saw the first successive 8 weekly decline since 1923 which really brings home the state of the current sell-off. After having a high conviction recession call all year for 2023, I can't say I have high conviction in the near-term. I don't expect that we will fall into recession imminently in the US or Europe and if that's the case then markets are likely to eventually stabilise and rally back. However if we do see a H2 2022 recession then this sell-off will likely end up at the more severe end of the historical recessionary sell-offs given the very high starting valuations (see Binky Chadha's excellent strategy piece here for more on this). However if I'm right that a 2023 recession is unavoidable then however much we rally back this year we'll be below current levels for equities in 12-18 months' time in my view. Given that my H2 2023 HY credit spread forecast is +850bp then that backs this point up. Longer-term if we do get a recession and inflation proves sticky over that period then equities are going to have a long period of mean reversion of valuations and it will be a difficult few years ahead. So the path of equities in my opinion depends on the recession timing and what inflation does when we hit that recession. Moving from pontificating about the next few years to now looking at what's coming up this week. The global preliminary PMIs for May tomorrow will be front and centre for investors following the growth concerns that have roiled markets of late. Central banks will also remain in focus as we will get the latest FOMC meeting minutes (Wednesday) and the US April PCE, the Fed's preferred inflation proxy, on Friday. An array of global industrial activity data will be another theme to watch. Consumer sentiment will be in focus too, with a number of confidence measures from Europe and personal income and spending data from the US (Friday). Corporates reporting results will include spending bellwethers Macy's and Costco. After last week’s retail earnings bloodbath (e.g. Walmart and Target) these will get added attention. On the Fed, the minutes may be a bit stale now but it’ll still be interesting to see the insight around the biases of 50bps vs 25/75bps hikes after the next couple of meetings. Thoughts on QT will also be devoured. Staying with the US, for the personal income and spending numbers on Friday, our US economists expect the two indicators to slow to +0.2% and +0.6% in April, respectively. The Fed’s preferred inflation gauge, the PCE, will be another important metric released the same day and DB’s economics team expects the April core reading to stay at +0.3%. Other US data will include April new home sales tomorrow and April durable goods orders on Wednesday. A number of manufacturing and business activity indicators are in store, too. Regional Fed indicators throughout the week will include an April gauge of national activity from the Chicago Fed (today) and May manufacturing indices from the Richmond Fed (tomorrow) and the Kansas City Fed (Thursday). In Europe, the May IFO business climate indicator for Germany will be out today, followed by a manufacturing confidence gauge for France (tomorrow) and Italy (Thursday). China's industrial profits are due on Friday. This week will also feature a number of important summits. Among them will be the World Economic Forum’s annual meeting in Davos that has now started and will run until next Thursday. It'll be the first in-person meeting since the pandemic began and geopolitics will likely be in focus. Meanwhile, President Biden will travel to Asia for the first time as US president and attend a Quad summit in Tokyo tomorrow. Details on the Indo-Pacific Economic Framework are expected. Finally, NATO Parliamentary Assembly’s 2022 Spring Session will be held in Vilnius from next Friday to May 30th. In corporate earnings, investors will be closely watching Macy's, Costco and Dollar General after this week's slump in Walmart and Target. Amid the carnage in tech, several companies that were propelled by the pandemic will be in focus too, with reporters including NVIDIA, Snowflake (Wednesday) and Zoom (today). Other notable corporates releasing earnings will be Lenovo, Alibaba, Baidu (Thursday) and XPeng (Monday). Overnight in Asia, equity markets are weak but US futures continue to bounce back. The Hang Seng (-1.75%) is the largest underperformer amid a fresh sell-off in Chinese listed tech stocks. Additionally, stocks in mainland China are also weak with the Shanghai Composite (-0.47%) and CSI (-0.99%) lower as Beijing reported record number of fresh Covid-19 cases, renewing concerns about a lockdown. Elsewhere, the Nikkei (+0.50%) is up in early trade while the Kospi (+0.02%) is flat. S&P 500 (+0.80%), NASDAQ 100 (+1.03%) and DAX (+0.96%) futures are all edging higher though and 10yr USTs are around +3.5bps higher. A quick review of last week’s markets now. Growth fears gripped markets while global central bankers retrenched their expectations for a strong dose of monetary tightening this year to combat inflation. The headline was the S&P 500 fell for the seventh straight week for the first time since after the tech bubble burst in 2001, tumbling -3.05% (+0.01% Friday), after back-and-forth price action which included an ignominious -4% decline on Wednesday, the worst daily performance in nearly two years. The index is now -18.68% from its YTD highs, narrowly avoiding a -20% bear market after a late rally to end the week, after dipping into intraday on Friday. Without one discreet driver, an amalgamation of worse-than-expected domestic data, fears about global growth prospects, and poor earnings from domestic retail giants that called into question the vitality of the American consumer soured sentiment. Indeed, on the latter point, consumer staples (-8.63%) and discretionary (-7.44%) were by far the largest underperformers on the week. European stocks managed to fare better, with the STOXX 600 falling -0.55% (+0.73% Friday) and the DAX losing just -0.33% (+0.72% Friday). The growth fears drove longer-dated sovereign bond yields over the week, with 10yr Treasuries falling -13.7bps (-5.6bps Friday). Meanwhile, the front end of the curve was relatively anchored, with 2yr yields basically unchanged over the week (-2.7bps Friday), and the amount of Fed hikes priced in through 2022 edging +3bps higher over the week to 2.75%, bringing 2s10s back below 20bps for the first time since early May. Chair Powell reiterated his commitment to bring inflation back to target, suggesting that getting policy rates to neutral did not constitute a stopping point if the Fed did not have “clear and convincing” evidence that inflation was falling. In Europe the front end was also weaker than the back end as Dutch central bank Governor Knot became the first General Council member to countenance +50bp hikes. 10yr yields didn't rally as much as in the US, closing the week at -0.4bps (-0.5bps Friday). The spectre of faster ECB tightening and slowing global growth drove 10yr BTPs to underperform, widening +15.2bps (+10.2bps Friday) to 205bps against bund equivalents. Gilts underperformed other sovereign bonds, with 10yr benchmarks selling off +14.9bps (+2.8bps Friday) and 2yr yields increasing +25.8bps (+1.6bps Friday). This came as UK CPI hit a 40yr high of 9.0% in April even if it slightly missed forecasts for the first time in seven months. Oil proved resilient to the growth fears rumbling through markets, with both brent crude (+0.90%, +0.46% Friday) and WTI futures (+2.48%, +0.91% Friday) posting modest gains over the week. Tyler Durden Mon, 05/23/2022 - 07:49.....»»

Futures Bounce On Evergrande Reprieve With Fed Looming Despite today's looming hawkish FOMC meeting in which Powell is widely expected to unveil that tapering is set to begin as soon as November and where the Fed's dot plot may signal one rate hike in 2022, futures climbed as investor concerns over China's Evergrande eased after the property developer negotiated a domestic bond payment deal. Commodities rallied while the dollar was steady. Contracts on the S&P 500 and Nasdaq 100 flipped from losses to gains as China’s central bank boosted liquidity when it injected a gross 120BN in yuan, the most since January... ... and investors mulled a vaguely-worded statement from the troubled developer about an interest payment.  S&P 500 E-minis were up 23.0 points, or 0.53%, at 7:30 a.m. ET. Dow E-minis were up 199 points, or 0.60%, and Nasdaq 100 E-minis were up 44.00 points, or 0.29%. Among individual stocks, Fedex fell 5.8% after the delivery company cut its profit outlook on higher costs and stalled growth in shipments. Morgan Stanley says it sees the company’s 1Q issues getting “tougher from here.” Commodity-linked oil and metal stocks led gains in premarket trade, while a slight rise in Treasury yields supported major banks. However, most sectors were nursing steep losses in recent sessions. Here are some of the biggest U.S. movers: Adobe (ADBE US) down 3.1% after 3Q update disappointed the high expectations of investors, though the broader picture still looks solid, Morgan Stanley said in a note Freeport McMoRan (FCX US), Cleveland- Cliffs (CLF US), Alcoa (AA US) and U.S. Steel (X US) up 2%-3% premarket, following the path of global peers as iron ore prices in China rallied Aethlon Medical (AEMD US) and Exela Technologies (XELAU US) advance along with other retail traders’ favorites in the U.S. premarket session. Aethlon jumps 21%; Exela up 8.3% Other so-called meme stocks also rise: ContextLogic +1%; Clover Health +0.9%; Naked Brand +0.9%; AMC +0.5% ReWalk Robotics slumps 18% in U.S. premarket trading, a day after nearly doubling in value Stitch Fix (SFIX US) rises 15.7% in light volume after the personal styling company’s 4Q profit and sales blew past analysts’ expectations Hyatt Hotels (H US) seen opening lower after the company launches a seven-million-share stock offering Summit Therapeutics (SMMT US) shares fell as much as 17% in Tuesday extended trading after it said the FDA doesn’t agree with the change to the primary endpoint that has been implemented in the ongoing Phase III Ri-CoDIFy studies when combining the studies Marin Software (MRIN US) surged more than 75% Tuesday postmarket after signing a new revenue-sharing agreement with Google to develop its enterprise technology platforms and software products The S&P 500 had fallen for 10 of the past 12 sessions since hitting a record high, as fears of an Evergrande default exacerbated seasonally weak trends and saw investors pull out of stocks trading at lofty valuations. The Nasdaq fell the least among its peers in recent sessions, as investors pivoted back into big technology names that had proven resilient through the pandemic. Focus now turns to the Fed's decision, due at 2 p.m. ET where officials are expected to signal a start to scaling down monthly bond purchases (see our preview here).  The Fed meeting comes after a period of market volatility stoked by Evergrande’s woes. China’s wider property-sector curbs are also feeding into concerns about a slowdown in the economic recovery from the pandemic. “Chair Jerome Powell could hint at the tapering approaching shortly,” said Sébastien Barbé, a strategist at Credit Agricole CIB. “However, given the current uncertainty factors (China property market, Covid, pace of global slowdown), the Fed should remain cautious when it comes to withdrawing liquidity support.” Meanwhile, confirming what Ray Dalio said that the taper will just bring more QE, Governing Council member Madis Muller said the  European Central Bank may boost its regular asset purchases once the pandemic-era emergency stimulus comes to an end. “Dovish signals could unwind some of the greenback’s gains while offering relief to stock markets,” Han Tan, chief market analyst at Exinity Group, wrote in emailed comments. A “hawkish shift would jolt markets, potentially pushing Treasury yields and the dollar past the upper bound of recent ranges, while gold and equities would sell off hunting down the next levels of support.” China avoided a major selloff as trading resumed following a holiday, after the country’s central bank boosted its injection of short-term cash into the financial system. MSCI’s Asia-Pacific index declined for a third day, dragged lower by Japan. Stocks were also higher in Europe. Basic resources - which bounced from a seven month low - and energy were among the leading gainers in the Stoxx Europe 600 index as commodity prices steadied after Beijing moved to contain fears of a spiraling debt crisis. Entain Plc rose more than 7%, extending Tuesday’s gain as it confirmed it received a takeover proposal from DraftKings Inc. Peer Flutter Entertainment Plc climbed after settling a legal dispute.  Here are some of the biggest European movers today: Entain shares jump as much as 11% after DraftKings Inc. offered to acquire the U.K. gambling company for about $22.4 billion. Vivendi rises as much as 3.1% in Paris, after Tuesday’s spinoff of Universal Music Group. Legrand climbs as much as 2.1% after Exane BNP Paribas upgrades to outperform and raises PT to a Street-high of EU135. Orpea shares falls as much as 2.9%, after delivering 1H results that Jefferies (buy) says were a “touch” below consensus. Bechtle slides as much as 5.1% after Metzler downgrades to hold from buy, saying persistent supply chain problems seem to be weighing on growth. Sopra Steria drops as much as 4.1% after Stifel initiates coverage with a sell, citing caution on company’s M&A strategy Despite the Evergrande announcement, Asian stocks headed for their longest losing streak in more than a month amid continued China-related concerns, with traders also eying policy decisions from major central banks. The MSCI Asia Pacific Index dropped as much as 0.7% in its third day of declines, with TSMC and Keyence the biggest drags. China’s CSI 300 tumbled as much as 1.9% as the local market reopened following a two-day holiday. However, the gauge came off lows after an Evergrande unit said it will make a bond interest payment and as China’s central bank boosted liquidity.  Taiwan’s equity benchmark led losses in Asia on Wednesday, dragged by TSMC after a two-day holiday, while markets in Hong Kong and South Korea were closed. Key stock gauges in Australia, Indonesia and Vietnam rose “A liquidity injection from the People’s Bank of China accompanied the Evergrande announcement, which only served to bolster sentiment further,” according to DailyFX’s Thomas Westwater and Daniel Dubrovsky. “For now, it appears that market-wide contagion risk linked to a potential Evergrande collapse is off the table.” Japanese equities fell for a second day amid global concern over China’s real-estate sector, as the Bank of Japan held its key stimulus tools in place while flagging pressures on the economy. Electronics makers were the biggest drag on the Topix, which declined 1%. Daikin and Fanuc were the largest contributors to a 0.7% loss in the Nikkei 225. The BOJ had been expected to maintain its policy levers ahead of next week’s key ruling party election. Traders are keenly awaiting the Federal Reserve’s decision due later for clues on the U.S. central banks plan for tapering stimulus. “Markets for some time have been convinced that the BOJ has reached the end of the line on normalization and will remain in a holding pattern on policy until at least April 2023 when Governor Kuroda is scheduled to leave,” UOB economist Alvin Liew wrote in a note. “Attention for the BOJ will now likely shift to dealing with the long-term climate change issues.” In the despotic lockdown regime that is Australia, the S&P/ASX 200 index rose 0.3% to close at 7,296.90, reversing an early decline in a rally led by mining and energy stocks. Banks closed lower for the fourth day in a row. Champion Iron was among the top performers after it was upgraded at Citi. IAG was among the worst performers after an earthquake caused damage to buildings in Melbourne. In New Zealand, the S&P/NZX 50 index rose 0.3% to 13,215.80 In FX, commodity currencies rallied as concerns about China Evergrande Group’s debt troubles eased as China’s central bank boosted liquidity and investors reviewed a statement from the troubled developer about an interest payment. Overnight implied volatility on the pound climbed to the highest since March ahead of Bank of England’s meeting on Thursday. The British pound weakened after Business Secretary Kwasi Kwarteng warnedthat people should prepare for longer-term high energy prices amid a natural-gas shortage that sent power costs soaring. Several U.K. power firms have stopped taking in new clients as small energy suppliers struggle to meet their previous commitments to sell supplies at lower prices. Overnight volatility in the euro rises above 10% for the first time since July ahead of the Federal Reserve’s monetary policy decision announcement. The Aussie jumped as much as 0.5% as iron-ore prices rebounded. Spot surged through option-related selling at 0.7240 before topping out near 0.7265 strikes expiring Wednesday, according to Asia- based FX traders.  Elsewhere, the yen weakened and commodity-linked currencies such as the Australian dollar pushed higher. In rates, the dollar weakened against most of its Group-of-10 peers. Treasury futures were under modest pressure in early U.S. trading, leaving yields cheaper by ~1.5bp from belly to long-end of the curve. The 10-year yield was at ~1.336% steepening the 2s10s curve by ~1bp as the front-end was little changed. Improved risk appetite weighed; with stock futures have recovering much of Tuesday’s losses as Evergrande concerns subside. Focal point for Wednesday’s session is FOMC rate decision at 2pm ET.   FOMC is expected to suggest it will start scaling back asset purchases later this year, while its quarterly summary of economic projections reveals policy makers’ expectations for the fed funds target in coming years in the dot-plot update; eurodollar positions have emerged recently that anticipate a hawkish shift Bitcoin dropped briefly below $40,000 for the first time since August amid rising criticism from regulators, before rallying as the mood in global markets improved. In commodities, Iron ore halted its collapse and metals steadied. Oil advanced for a second day. Bitcoin slid below $40,000 for the first time since early August before rebounding back above $42,000.   To the day ahead now, and the main highlight will be the aforementioned Federal Reserve decision and Chair Powell’s subsequent press conference. Otherwise on the data side, we’ll get US existing home sales for August, and the European Commission’s advance consumer confidence reading for the Euro Area in September. Market Snapshot S&P 500 futures up 0.4% to 4,362.25 STOXX Europe 600 up 0.5% to 461.19 MXAP down 0.7% to 199.29 MXAPJ down 0.4% to 638.39 Nikkei down 0.7% to 29,639.40 Topix down 1.0% to 2,043.55 Hang Seng Index up 0.5% to 24,221.54 Shanghai Composite up 0.4% to 3,628.49 Sensex little changed at 59,046.84 Australia S&P/ASX 200 up 0.3% to 7,296.94 Kospi up 0.3% to 3,140.51 Brent Futures up 1.5% to $75.47/bbl Gold spot up 0.0% to $1,775.15 U.S. Dollar Index little changed at 93.26 German 10Y yield rose 0.6 bps to -0.319% Euro little changed at $1.1725 Top Overnight News from Bloomberg What would it take to knock the U.S. recovery off course and send Federal Reserve policy makers back to the drawing board? Not much — and there are plenty of candidates to deliver the blow The European Central Bank will discuss boosting its regular asset purchases once the pandemic-era emergency stimulus comes to an end, but any such increase is uncertain, Governing Council member Madis Muller said Investors seeking hints about how Beijing plans to deal with China Evergrande Group’s debt crisis are training their cross hairs on the central bank’s liquidity management A quick look at global markets courtesy of Newsquawk Asian equity markets traded mixed as caution lingered ahead of upcoming risk events including the FOMC, with participants also digesting the latest Evergrande developments and China’s return to the market from the Mid-Autumn Festival. ASX 200 (+0.3%) was positive with the index led higher by the energy sector after a rebound in oil prices and as tech also outperformed, but with gains capped by weakness in the largest-weighted financials sector including Westpac which was forced to scrap the sale of its Pacific businesses after failing to secure regulatory approval. Nikkei 225 (-0.7%) was subdued amid the lack of fireworks from the BoJ announcement to keep policy settings unchanged and ahead of the upcoming holiday closure with the index only briefly supported by favourable currency outflows. Shanghai Comp. (+0.4%) was initially pressured on return from the long-weekend and with Hong Kong markets closed, but pared losses with risk appetite supported by news that Evergrande’s main unit Hengda Real Estate will make coupon payments due tomorrow, although other sources noted this is referring to the onshore bond payments valued around USD 36mln and that there was no mention of the offshore bond payments valued at USD 83.5mln which are also due tomorrow. Meanwhile, the PBoC facilitated liquidity through a CNY 120bln injection and provided no surprises in keeping its 1-year and 5-year Loan Prime Rates unchanged for the 17th consecutive month at 3.85% and 4.65%, respectively. Finally, 10yr JGBs were flat amid the absence of any major surprises from the BoJ policy announcement and following the choppy trade in T-notes which were briefly pressured in a knee-jerk reaction to the news that Evergrande’s unit will satisfy its coupon obligations tomorrow, but then faded most of the losses as cautiousness prevailed. Top Asian News Gold Steady as Traders Await Outcome of Fed Policy Meeting Evergrande Filing on Yuan Bond Interest Leaves Analysts Guessing Singapore Category E COE Price Rises to Highest Since April 2014 Asian Stocks Fall for Third Day as Focus Turns to Central Banks European equities (Stoxx 600 +0.5%) trade on a firmer footing in the wake of an encouraging APAC handover. Focus overnight was on the return of Chinese participants from the Mid-Autumn Festival and news that Evergrande’s main unit, Hengda Real Estate will make coupon payments due tomorrow; however, we await indication as to whether they will meet Thursday’s offshore payment deadline as well. Furthermore, the PBoC facilitated liquidity through a CNY 120bln injection whilst keeping its 1-year and 5-year Loan Prime Rates unchanged (as expected). Note, despite gaining yesterday and today, thus far, the Stoxx 600 is still lower to the tune of 0.7% on the week. Stateside, futures are also trading on a firmer footing ahead of today’s FOMC policy announcement, at which, market participants will be eyeing any clues for when the taper will begin and digesting the latest dot plot forecasts. Furthermore, the US House voted to pass the bill to fund the government through to December 3rd and suspend the debt limit to end-2022, although this will likely be blocked by Senate Republicans. Back to Europe, sectors are mostly firmer with outperformance in Basic Resources and Oil & Gas amid upside in the metals and energy complex. Elsewhere, Travel & Leisure is faring well amid further upside in Entain (+6.1%) with the Co. noting it rejected an earlier approach from DraftKings at GBP 25/shr with the new offer standing at GBP 28/shr. Additionally for the sector, Flutter Entertainment (+4.1%) are trading higher after settling the legal dispute between the Co. and Commonwealth of Kentucky. Elsewhere, in terms of deal flow, Iliad announced that it is to acquire UPC Poland for around USD 1.8bln. Top European News Energy Cost Spike Gets on EU Ministers’ Green Deal Agenda Travel Startup HomeToGo Gains in Frankfurt Debut After SPAC Deal London Stock Exchange to Shut Down CurveGlobal Exchange EU Banks Expected to Add Capital for Climate Risk, EBA Says In FX, trade remains volatile as this week’s deluge of global Central Bank policy meetings continues to unfold amidst fluctuations in broad risk sentiment from relatively pronounced aversion at various stages to a measured and cautious pick-up in appetite more recently. Hence, the tide is currently turning in favour of activity, cyclical and commodity currencies, albeit tentatively in the run up to the Fed, with the Kiwi and Aussie trying to regroup on the 0.7000 handle and 0.7350 axis against their US counterpart, and the latter also striving to shrug off negative domestic impulses like a further decline below zero in Westpac’s leading index and an earthquake near Melbourne. Next up for Nzd/Usd and Aud/Usd, beyond the FOMC, trade data and preliminary PMIs respectively. DXY/CHF/EUR/CAD - Notwithstanding the overall improvement in market tone noted above, or another major change in mood and direction, the Dollar index appears to have found a base just ahead of 93.000 and ceiling a similar distance away from 93.500, as it meanders inside those extremes awaiting US existing home sales that are scheduled for release before the main Fed events (policy statement, SEP and post-meeting press conference from chair Powell). Indeed, the Franc, Euro and Loonie have all recoiled into tighter bands vs the Greenback, between 0.9250-26, 1.1739-17 and 1.2831-1.2770, but with the former still retaining an underlying bid more evident in the Eur/Chf cross that is consolidating under 1.0850 and will undoubtedly be acknowledged by the SNB tomorrow. Meanwhile, Eur/Usd has hardly reacted to latest ECB commentary from Muller underpinning that the APP is likely to be boosted once the PEPP envelope is closed, though Usd/Cad is eyeing a firm rebound in oil prices in conjunction with hefty option expiry interest at the 1.2750 strike (1.8 bn) that may prevent the headline pair from revisiting w-t-d lows not far beneath the half round number. GBP/JPY - The major laggards, as Sterling slips slightly further beneath 1.3650 against the Buck to a fresh weekly low and Eur/Gbp rebounds from circa 0.8574 to top 0.8600 on FOMC day and T-1 to super BoE Thursday. Elsewhere, the Yen has lost momentum after peaking around 109.12 and still not garnering sufficient impetus to test 109.00 via an unchanged BoJ in terms of all policy settings and guidance, as Governor Kuroda trotted out the no hesitation to loosen the reins if required line for the umpteenth time. However, Usd/Jpy is holding around 109.61 and some distance from 1.1 bn option expiries rolling off between 109.85-110.00 at the NY cut. SCANDI/EM - Brent’s revival to Usd 75.50+/brl from sub-Usd 73.50 only yesterday has given the Nok another fillip pending confirmation of a Norges Bank hike tomorrow, while the Zar has regained some poise with the aid of firmer than forecast SA headline and core CPI alongside a degree of retracement following Wednesday’s breakdown of talks on a pay deal for engineering workers that prompted the union to call a strike from early October. Similarly, the Cnh and Cny by default have regrouped amidst reports that the CCP is finalising details to restructure Evergrande into 3 separate entities under a plan that will see the Chinese Government take control. In commodities, WTI and Brent are firmer this morning though once again fresh newsflow for the complex has been relatively slim and largely consisting of gas-related commentary; as such, the benchmarks are taking their cue from the broader risk tone (see equity section). The improvement in sentiment today has brought WTI and Brent back in proximity to being unchanged on the week so far as a whole; however, the complex will be dictated directly by the EIA weekly inventory first and then indirectly, but perhaps more pertinently, by today’s FOMC. On the weekly inventories, last nights private release was a larger than expected draw for the headline and distillate components, though the Cushing draw was beneath expectations; for today, consensus is a headline draw pf 2.44mln. Moving to metals where the return of China has seen a resurgence for base metals with LME copper posting upside of nearly 3.0%, for instance. Albeit there is no fresh newsflow for the complex as such, so it remains to be seen how lasting this resurgence will be. Finally, spot gold and silver are firmer but with the magnitude once again favouring silver over the yellow metal. US Event Calendar 10am: Aug. Existing Home Sales MoM, est. -1.7%, prior 2.0% 2pm: Sept. FOMC Rate Decision (Lower Boun, est. 0%, prior 0% DB's Jim Reid concludes the overnight wrap All eyes firmly on China this morning as it reopens following a 2-day holiday. As expected the indices there have opened lower but the scale of the declines are being softened by the PBoC increasing its short term cash injections into the economy. They’ve added a net CNY 90bn into the system. On Evergrande, we’ve also seen some positive headlines as the property developers’ main unit Hengda Real Estate Group has said that it will make coupon payment for an onshore bond tomorrow. However, the exchange filing said that the interest payment “has been resolved via negotiations with bondholders off the clearing house”. This is all a bit vague and doesn’t mention the dollar bond at this stage. Meanwhile, Bloomberg has reported that Chinese authorities have begun to lay the groundwork for a potential restructuring that could be one of the country’s biggest, assembling accounting and legal experts to examine the finances of the group. All this follows news from Bloomberg yesterday that Evergrande missed interest payments that had been due on Monday to at least two banks. In terms of markets the CSI (-1.11%), Shanghai Comp (-0.29%) and Shenzhen Comp (-0.53%) are all lower but have pared back deeper losses from the open. We did a flash poll in the CoTD yesterday (link here) and after over 700 responses in a couple of hours we found only 8% who we thought Evergrande would still be impacting financial markets significantly in a month’s time. 24% thought it would be slightly impacting. The other 68% thought limited or no impact. So the world is relatively relaxed about contagion risk for now. The bigger risk might be the knock on impact of weaker Chinese growth. So that’s one to watch even if you’re sanguine on the systemic threat. Craig Nicol in my credit team did a good note yesterday (link here) looking at the contagion risk to the broader HY market. I thought he summed it up nicely as to why we all need to care one way or another in saying that “Evergrande is the largest corporate, in the largest sector, of the second largest economy in the world”. For context AT&T is the largest corporate borrower in the US market and VW the largest in Europe. Turning back to other Asian markets now and the Nikkei (-0.65%) is down but the Hang Seng (+0.51%) and Asx (+0.58%) are up. South Korean markets continue to remain closed for a holiday. Elsewhere, yields on 10y USTs are trading flattish while futures on the S&P 500 are up +0.10% and those on the Stoxx 50 are up +0.21%. Crude oil prices are also up c.+1% this morning. In other news, the Bank of Japan policy announcement overnight was a non-event as the central bank maintained its yield curve target while keeping the policy rate and asset purchases plan unchanged. The central bank also unveiled more details of its green lending program and said that it would immediately start accepting applications and would begin making the loans in December. The relatively calm Asian session follows a stabilisation in markets yesterday following their rout on Monday as investors looked forward to the outcome of the Fed’s meeting later today. That said, it was hardly a resounding performance, with the S&P 500 unable to hold on to its intraday gains and ending just worse than unchanged after the -1.70% decline the previous day as investors remained vigilant as to the array of risks that continue to pile up on the horizon. One of these is in US politics and legislators seem no closer to resolving the various issues surrounding a potential government shutdown at the end of the month, along with a potential debt ceiling crisis in October, which is another flashing alert on the dashboard for investors that’s further contributing to weaker sentiment right now. Looking ahead now, today’s main highlight will be the latest Federal Reserve decision along with Chair Powell’s subsequent press conference, with the policy decision out at 19:00 London time. Markets have been on edge for any clues about when the Fed might begin to taper asset purchases, but concern about tapering actually being announced at this meeting has dissipated over recent weeks, particularly after the most recent nonfarm payrolls in August came in at just +235k, and the monthly CPI print also came in beneath consensus expectations for the first time since November. In terms of what to expect, our US economists write in their preview (link here) that they see the statement adopting Chair Powell’s language that a reduction in the pace of asset purchases is appropriate “this year”, so long as the economy remains on track. They see Powell maintaining optionality about the exact timing of that announcement, but they think that the message will effectively be that the bar to pushing the announcement beyond November is relatively high in the absence of any material downside surprises. This meeting also sees the release of the FOMC’s latest economic projections and the dot plot, where they expect there’ll be an upward drift in the dots that raises the number of rate hikes in 2023 to 3, followed by another 3 increases in 2024. Back to yesterday, and as mentioned US equity markets fell for a second straight day after being unable to hold on to earlier gains, with the S&P 500 slightly lower (-0.08%). High-growth industries outperformed with biotech (+0.38%) and semiconductors (+0.18%) leading the NASDAQ (+0.22%) slightly higher, however the Dow Jones (-0.15%) also struggled. Europe saw a much stronger performance though as much of the US decline came after Europe had closed. The STOXX 600 gained +1.00% to erase most of Monday’s losses, with almost every sector in the index ending the day in positive territory. With risk sentiment improving for much of the day yesterday, US Treasuries sold off slightly and by the close of trade yields on 10yr Treasuries were up +1.2bps to 1.3226%, thanks to a +1.8bps increase in real yields. However, sovereign bonds in Europe told a different story as yields on 10yr bunds (-0.3bps), OATs (-0.3bps) and BTPs (-1.9bps) moved lower. Other safe havens including gold (+0.59%) and silver (+1.02%) also benefited, but this wasn’t reflected across commodities more broadly, with Bloomberg’s Commodity Spot Index (-0.30%) losing ground for a 4th consecutive session. Democratic Party leaders plan to vote on the Senate-approved $500bn bipartisan infrastructure bill next Monday, even with no resolution to the $3.5tr budget reconciliation measure that encompasses the remainder of the Biden Administration’s economic agenda. Democrats continue to work on the reconciliation measure but have turned their attention to the debt ceiling and government funding bills.Congress has fewer than two weeks before the current budget expires – on Oct 1 – to fund the government and raise the debt ceiling. Republicans yesterday noted that the Democrats could raise the ceiling on their own through the reconciliation process, with many saying that they would not be offering their support to any funding bill. Democrats continue to push for a bipartisan bill to raise the debt ceiling, pointing to their votes during the Trump administration. If Democrats are forced to tie the debt ceiling and funding bills to budget reconciliation, it could limit how much of the $3.5 trillion bill survives the last minute negotiations between progressives and moderates. More to come over the next 10 days. Staying on the US, there was an important announcement in President Biden’s speech at the UN General Assembly, as he said that he would work with Congress to double US funding to poorer nations to deal with climate change. That comes as UK Prime Minister Johnson (with the UK hosting the COP26 summit in less than 6 weeks’ time) has been lobbying other world leaders to find the $100bn per year that developed economies pledged by 2020 to support developing countries as they reduce their emissions and deal with climate change. In Germany, there are just 4 days to go now until the federal election, and a Forsa poll out yesterday showed a slight narrowing in the race, with the centre-left SPD remaining on 25%, but the CDU/CSU gained a point on last week to 22%, which puts them within the +/- 2.5 point margin of error. That narrowing has been seen in Politico’s Poll of Polls as well, with the race having tightened from a 5-point SPD lead over the CDU/CSU last week to a 3-point one now. Turning to the pandemic, Johnson & Johnson reported that their booster shot given 8 weeks after the first offered 100% protection against severe disease, 94% protection against symptomatic Covid in the US, and 75% against symptomatic Covid globally. Speaking of boosters, Bloomberg reported that the FDA was expected to decide as soon as today on a recommendation for Pfizer’s booster vaccine. That follows an FDA advisory panel rejecting a booster for all adults last Friday, restricting the recommendation to those over-65 and other high-risk categories. Staying with the US and vaccines, President Biden announced that the US was ordering 500mn doses of the Pfizer vaccine to be exported to the rest of the world. On the data front, there were some strong US housing releases for August, with housing starts up by an annualised 1.615m (vs. 1.55m expected), and building permits up by 1.728m (vs. 1.6m expected). Separately, the OECD released their Interim Economic Outlook, which saw them upgrade their inflation expectations for the G20 this year to +3.7% (up +0.2ppts from May) and for 2022 to +3.9% (up +0.5ppts from May). Their global growth forecast saw little change at +5.7% in 2021 (down a tenth) and +4.5% for 2022 (up a tenth). To the day ahead now, and the main highlight will be the aforementioned Federal Reserve decision and Chair Powell’s subsequent press conference. Otherwise on the data side, we’ll get US existing home sales for August, and the European Commission’s advance consumer confidence reading for the Euro Area in September. Tyler Durden Wed, 09/22/2021 - 08:05.....»»

Futures Tumble, Treasuries And Rate Cut Odds Soar Amid Panic That Deutsche Bank Is The Next To Go Yesterday, while attention was still focused on the US banking system and the ongoing botched response by the Fed and especially the Treasury's senile Secretary, who more than two weeks after SIVB collapsed, have still not been able to stabilize confidence in banks - thereby assuring the US is about to slam head first into a brutal recession, just as Biden ordered to contain inflation, as US consumer spending is now in freefall - we pointed out that something bad was taking place in Europe: the credit default swaps of perpetually semi-solvent banking giant Deutsche Bank were quietly blowing out to multi-year highs. oh... pic.twitter.com/vNXc8ZE3Nm — zerohedge (@zerohedge) March 23, 2023 Well, we didn't have long to wait before everyone else also noticed and this morning it's official: the crisis has shifted to Germany's and Europe's largest TBTF bank, with even Bloomberg now writing that Deutsche Bank "has become the latest focus of the banking turmoil in Europe as ongoing concern about the industry sent its shares slumping the most in three years and the cost of insuring against default rising." The bank - which has staged a recovery in recent years after a series of crises that nearly brought it down - said Friday it will redeem a tier 2 subordinated bond early. And while such moves are usually intended to give investors confidence in the strength of the balance sheet, though the share price reaction suggests the message isn’t getting through, and the stock plunged 13% in German trading... ... while DB's CDS has exploded to level surpassing the bank's near-collapse in 2016, and is about to take out the covid wides. “It is a clear case of the market selling first and asking questions later,” said Paul de la Baume, senior market strategist at FlowBank SA. “Traders do not have the risk appetite to hold positions through the weekend, given the banking risk and what happened last week with Credit Suisse and regulators.” It wasn't just Deutsche Bank: UBS Group AG shares also dropped as Bloomberg reported that it’s one of the banks under scrutiny in a US Justice Department probe into whether finncial professionals helped Russian oligarchs evade sanctions, according to people familiar with the matter. In any case, the sudden, violent spike in DB default risk which quickly carried over to all big European banks, and which will not reverse until first the ECB then the Fed both cut rates... ... sent broader risk sentiment reeling with S&P 500 futures at session lows, sliding 1% to 3940. While there was no one big story setting off these moves. It could be a rush to havens heading into the weekend as traders wait for another shoe to drop — which has been a theme during recent weekends. In any case, the latest global equity rout and bank crisis which is now spreading to TBTF banks has sent bond yields crashing with the 2-year US yield plumbing new session lows, breaking down as low as 3.55%, and the resulting shockwave has collapsed odds of another rate hike in May to just 28% while the odds of a rate cut in June have exploded to 83% as the Fed's pivot finally arrives just on time: with the Fed having again broken the global financial system. In premarket trading, First Republic Bank swung between gains and losses as investors digested Treasury Secretary Janet Yellen’s comments about regulators being prepared to take additional steps to guard bank deposits if warranted. Fellow regional banks and bigger lenders decline, and after a volatile session on Thursday took the stock’s March slump to 90%. Block fell another 5%, extending Thursday’s 15% plunge as it announced potential legal action against short seller Hindenburg Research for its report on the payment processor.  Here are some other notable premarket movers: US cryptocurrency-exposed stocks decline, taking a pause from recent gains as the price of Bitcoin falls amid broader risk-off sentiment. Marathon Digital (MARA US) slid 0.9%, Hut 8 Mining Corp (HUT US) -1%, Coinbase (COIN US) -1.9%, Riot Platforms (RIOT US) -1.4%. ReNew Energy Global gains 12% after Bloomberg reported, citing people familiar with the matter, that the Canada Pension Plan Investment Board is exploring buying the shares of the power producer that it doesn’t already own and taking the Nasdaq- listed firm private. Joann slumped 6.2% in extended trading on Thursday after the fabric and crafts retailer reported adjusted earnings per share and Ebitda that missed the average analyst estimates, even as sales topped expectations. Oxford Industries fell 5.5% in postmarket trading after the owner of Tommy Bahama and Lilly Pulitzer issued a forecast for net sales in the current quarter that trailed the average analyst estimate at the midpoint of the guidance range. “Confidence is fragile, market volatility is likely to stay high, and policymakers may have to go further to make sure faith in the global financial system stays solid,” said Mark Haefele, chief investment officer at UBS Wealth Management. “Financial conditions are also likely to tighten, which increases the risk of a hard landing for the economy, even if central banks ease off on interest-rate hikes.” “Credit and stock markets too greedy for rate cuts, not fearful enough of recession,” a team led by Michael Hartnett wrote in a note. The strategist, who was correctly bearish through last year, said investment-grade spreads and stocks will be taking a hit over the next three to six months. Global cash funds had inflows of nearly $143 billion, the largest since March 2020 in the week through Wednesday — adding up to more than $300 billion over the past four weeks, according to the note citing EPFR Global data. European stocks are also plumbing lower, with European bank stocks sliding for a third day, and erasing weekly and yearly gains, as sentiment remains fragile on the sector. Deutsche Bank slumped nearly 15% as credit-default swaps surged amid wider concerns about the stability of the banking sector. The Stoxx 600 Banks Index is 5.3% lower as of 11:20am in London, erasing earlier weekly gains; the index is now -2.8% YTD. Meanwhile, UBS, which is not in the banking sector index, slumped as much as 8.4% as Jefferies cut its rating to hold from buy and it was among the banks under scrutiny in a US Justice Department probe into whether financial professionals helped Russian oligarchs evade sanctions. European oil stocks are also underperforming on Friday, dragging down the regional benchmark, as crude prices slump under pressure from a stronger dollar and concerns about the impact on growth of a fresh bout of stress facing the banking sector. The Energy sub-index slid as much as 4.3%, the most since March 15, while the Stoxx Europe 600 benchmark fell about 2%. Here are some other notable European movers: Casino Guichard-Perrachon SA fell as much as 6% to a fresh record low after Moody’s cut its long-term debt rating on the company further into junk territory Dino Polska drops as much as 5%, after its 4Q report showed that the Polish food supermarket chain is unable to maintain profitability amid inflation pressures Smiths Group gains as much as 2.1%, after the industrial firm beat expectations on Ebita, while also surpassing projections on its full-year sales outlook JD Wetherspoon jumps as much as 9.3% after the British pub operator posted a revenue beat for 1H, with Jefferies analysts noting resilience in like-for-like sales Earlier in the session, Asia equities were set to snap a three-day rally as lingering concerns over the health of the banking sector pushed a gauge of the region’s financial shares lower. The MSCI Asia Pacific Index fell as much as 0.5% before trimming losses, with its 11 sectoral sub-gauges showing mixed moves. Most markets declined, led by Hong Kong’s Hang Seng Index, while Chinese tech shares extended their rally on the back of positive earnings.  An index of Asian financial stocks dropped as much as 0.9%, tracking overnight declines in a measure of US financial heavyweights to the lowest since November 2020. Treasury Secretary Janet Yellen’s comments that authorities can take further steps to protect the banking system if needed failed to fully assuage concerns.  “The unease in the financial space will continue to weigh on the Asian financial sectors,” said Hebe Chen, an analyst at IG Markets Ltd. “The flip-flop in the market this week is seeing overwhelmed investors scratching their heads in the face of the mixed bag from Fed.”  Even with Friday’s lackluster moves, the MSCI Asia benchmark was set to notch its best weekly performance in about two months. The shares rose earlier in the week thanks to assurances from regulators in the US and Europe over protecting the banking sector and the Federal Reserve’s dovish tilt.   Meanwhile, a gauge of tech stocks in Hong Kong advanced for the fourth day close at its highest in a month. Lenovo led the gain, with JPMorgan lifting its recommendation on a bottoming of PC demand. “We like the internet sector, especially within China right now,” Marcella Chow, JPMorgan Asset Management’s global market strategist, said in an interview with Bloomberg TV. “China tech sector is attractive given improving regulatory outlook, leaner and more cost effective cost structure, improving margin.”  Japanese stocks Inched lower as worries linger over the financial sector while investors assess statements made by US Treasury Secretary Janet Yellen. The Topix Index fell 0.1% to 1,955.32 as of market close Tokyo time, while the Nikkei declined 0.1% to 27,385.25. Mitsubishi UFJ Financial Group Inc. contributed the most to the Topix Index decline, decreasing 1.1%. Out of 2,159 stocks in the index, 976 rose and 1,039 fell, while 144 were unchanged. “Assuming that the fallout from the US financial sector woes doesn’t spread significantly, Japanese stocks will likely stop its decline and pick up as the earnings period starts next month,” said Takeru Ogihara, a chief strategist at Asset Management One Australian stocks slumped to post a seventh week of losses; the S&P/ASX 200 index fell 0.2% to close at 6,955.20, with financials the biggest drag, as the malaise hanging over the global banking sector continued to damp sentiment. The benchmark erased 0.6% for the week, the seventh straight decline, maintaining the longest losing streak since 2008.  In New Zealand, the S&P/NZX 50 index fell 0.1% to 11,580.82. Indian stocks declined for a third straight week in the longest losing streak since December spurred by a late selloff in key gauges amid risk-off sentiment in global equities. The Nifty 50 index ended just shy of entering a so-called technical correction given the index’s near 10% drop from its December peak. For the week, the Nifty 50 fell 0.9% while the Sensex declined 0.8%. The S&P BSE Sensex fell 0.7% to 57,527.10 as of 3:30 p.m. in Mumbai, while the NSE Nifty 50 Index declined 0.8% to 16,945.05.  The selloff in small and mid cap counters contributed to the broader losses, with the Nifty Mid cap 100 and Nifty Small Cap 100 indexes ending nearly 2% lower each. Stocks of asset management companies were hammered after the government dropped the benefit of long-term capital gains tax for debt mutual funds in order to ensure parity in tax treatment with other such products. Shares of HDFC AMC dropped 4.1%, Aditya Birla AMC -2%, UTI AMC -4.8% and Nippon Life India AMC -1.2%. Reliance Industries contributed the most to the index decline, decreasing 2%. Out of 30 shares in the Sensex index, six rose and 24 fell In FX, the dollar’s recent weakness, which had supported the outlook for the region’s currencies and other assets, also took a breather on Friday. The Bloomberg dollar index rose 0.3% after a six-day run of declines. The yen rallies to the highest in six weeks amid demand for haven assets due to concerns over the health of the global banking sector. The yen was the biggest gainer versus the greenback among the Group-of-10 currencies. Treasury yields continued to decline reflecting expectations for Federal Reserve rate cuts this year “JPY’s strong performance we believe is driven by the return of its safe haven appeal, especially given that we see that Japanese banks are in a relatively better standing,” said Alan Lau, a strategist at Malayan Banking Bhd in Singapore. “Falling UST yields have also given the JPY support recently. Overall, we are positive on the yen and see the spot being on a downward trend this year with our year-end forecast at 122” In rates, Treasuries front-end adds to Thursday’s gains, with 2-year yields richer by over 20bp on the day, as the yield continues to plumb new session lows, breaking as low as 3.55%, dropping below th 2023 lows, and steepening the curve as traders continue to price out rate-hike premium for the May meeting and start pricing for cuts as early as June. Yields were near lows of the day while rest of the curve is richer by 17bp across belly to 9bp out to long-end; front-end led gains steepens 2s10s, 5s30s by 10bp and 8bp on the day. SOFR white-pack futures surge higher, with gains led by Dec23 contract which rallied 27bp vs. Thursday close; Fed-dated OIS shows just 4bp of rate hike premium for the May policy meeting with almost a full cut then priced into the June policy meeting — around 120bp of rate hikes are then priced into year-end In commodities, oil slipped the most in over a week, with Brent below $75, tracking a slide in equity markets and feeling the effects of a stronger dollar. Aluminum and copper headed toward their biggest weekly gains in more than two months on increasing demand in China and bets on looser Federal Reserve policy. Uranium Energy is among the most active resources stocks in premarket trading, falling about 9%. Gold traded just shy of $2000 and is about to break solidly higher. To the day ahead now, and data releases include the March flash PMIs from Europe and the US, along with UK retail sales for February, and the preliminary US durable goods orders for February. Otherwise from central banks, we’ll hear from the ECB’s De Cos, Nagel and Centeno, the Fed’s Bullard and the BoE’s Mann.   Market Snapshot S&P 500 futures down 1% to 3,940 MXAP down 0.2% to 160.13 MXAPJ down 0.5% to 515.46 Nikkei down 0.1% to 27,385.25 Topix down 0.1% to 1,955.32 Hang Seng Index down 0.7% to 19,915.68 Shanghai Composite down 0.6% to 3,265.65 Sensex down 0.2% to 57,801.12 Australia S&P/ASX 200 down 0.2% to 6,955.24 Kospi down 0.4% to 2,414.96 STOXX Europe 600 down 0.7% to 443.10 German 10Y yield little changed at 2.11% Euro down 0.4% to $1.0791 Brent Futures down 0.6% to $75.46/bbl Gold spot down 0.3% to $1,987.17 U.S. Dollar Index up 0.30% to 102.84 Top Overnight News A Federal Reserve facility that gives foreign central banks access to dollar funding was tapped for a record $60 billion in the week through March 22: BBG Deutsche Bank AG was at the center of another selloff in financial shares heading into the weekend: BBG Credit Suisse Group AG and UBS Group AG are among banks under scrutiny in a US Justice Department probe into whether financial professionals helped Russian oligarchs evade sanctions, according to people familiar with the matter: BBG Japan’s headline national CPI for Feb cools to +3.3% (down from +4.3% in Jan and inline w/the St) while core ticks higher to +3.5% (up from +3.2% in Jan and ahead of the St’s +3.4% forecast). RTRS Copper prices will surge to a record high this year as a rebound in Chinese demand risks depleting already low stockpiles, the world’s largest private metals trader has forecast. Global inventories of the metal used in everything from power cables and electric cars to buildings have dropped rapidly in recent weeks to their lowest seasonal level since 2008, leaving little buffer if demand in China continues to pace ahead. FT Authorities this week raided the Beijing offices of Mintz Group, detaining all five of the New York-based due diligence firm’s staff members in mainland China, the company said—an incident likely to unnerve global businesses operating in the country. WSJ China’s top diplomat Wang Yi urged Europe to play a role in supporting peace talks for Russia’s war in Ukraine, though the US has warned Beijing’s proposals would effectively freeze the Kremlin’s territorial gains. BBG Ukrainian troops, on the defensive for months, will soon counterattack as Russia's offensive looks to be faltering, a commander said, but President Volodymyr Zelenskiy warned that without a faster supply of arms the war could last years. RTRS Europe’s flash PMIs for March were mixed, with upside on services (55.6, up from 52.7 in Feb and ahead of the St’s 52.5 forecast) but downside on manufacturing (47.1, down from 48.5 in Feb and below the St’s 49 forecast). “Inflationary pressures have continued to moderate, with input prices falling sharply in manufacturing… overall input costs rose at the slowest rate since March 2021…the record easing of supply constraints marks a major reversal from the record delays seen during the pandemic” S&P Deutsche Bank was at the center of another selloff in financials. The bank tumbled 11% in Frankfurt and default-swaps on its euro, senior debt surged to the highest since they were introduced in 2019, when Germany revamped its debt framework to introduce senior preferred notes. Other banks with high exposure to corporate lending also declined. Commerzbank slid 9% and Soc Gen 7%.  BBG The Swiss authorities and UBS Group AG are racing to close the takeover of Credit Suisse Group AG within as little as a month, according to two sources with knowledge of the plans, to try to retain the lender's clients and employees. RTRS Citizens Financial is set to submit a bid for SVB's private banking arm, Reuters reported. Customers Bancorp is also said to be exploring a deal for all or part of SVB. Carson Block said depositors at SVB and Signature Bank should have taken haircuts after regulators seized the firms. BBG A more detailed look at global markets courtesy of Newsquawk APAC stocks were mostly subdued after the recent bout of central bank rate hikes and choppy performance stateside where Wall Street just about closed higher amid a dovish market repricing of Fed rate expectations.     ASX 200 was lower with risk appetite sapped by weak PMI data which returned to contraction territory. Nikkei 225 lacked conviction after the latest inflation data printed mostly in line with estimates. Hang Seng and Shanghai Comp. retreated after the central bank drained liquidity and as participants digest earnings releases, while it was also reported that the US added 14 Chinese entities to the red flag list. Top Asian News HKMA said Hong Kong has very little exposure to the European and US banking situation, while it needs to monitor the situation carefully for any further volatility but is not concerned about risks to the Hong Kong banking sector. China is to extend some tax relief measures, according to local media. Equities are back under marked pressure as banking sector concern re-intensifies within Europe, Euro Stoxx 50 -2.3% & ES -0.8%. Specifically, the European banking index SX7P -5.0% is the standout laggard amid broad-based pressure in banking names as CDS' for the stocks continue to rise alongside focus on the redemption of notes by Deutsche Bank and Lloyds; currently, Deutsche Bank -12% is the Stoxx 600 laggard. Stateside, futures are pressured in tandem with the above price action though with the magnitude less pronounced ahead of the arrival of US players and as we await potential updates to the regions own banking names. Apple (AAPL) supplier Pegatron (4982 TW) is reportedly looking to open a second factory within India, to construct the latest iPhone models, via Reuters citing sources. Top European News ECB is likely to reassure EU leaders regarding bank stability on Friday and is to call for EU deposit insurance, according to Reuters. ECB's Nagel says it is necessary to increase policy rates to sufficiently restrictive levels, whilst the APP wind down should accelerate from Q3. Domestic price pressures are likely to last for longer, whilst underlying inflation is increasingly concerning. There are signs of second-round effects from inflation-induced higher wage increases. ECB's Nagel says there is often a bumpy road after similar instances in the banking sector, not surprising there have been market moves. On Deutsche Bank's share slide, ECB's Nagel will not comment. BoE's Bailey says rates will rise again if firms hike prices, via BBC; "If all prices try to beat inflation we will get higher inflation," Bank headlines Deutsche Bank (DBK GY) announces a decision to redeem its USD 1.5bln fixed to fixed reset rate subordinated Tier 2 notes, due 2028. Lloyds (LLOY LN) has issued a notice of redemption for the entire outstanding principal amount of the USD 1bln 0.695% senior callable fixed-to-fixed rate notes due 2024. In terms of the accompanying risk-off price action, the desk notes the early redemption(s) can perhaps be taken as a negative if we assume the justification is that the bank(s) expect to see more dovishness/risk-off before the next fixed-to-fixed rate adjustment. UBS Wealth Management head Khan offered a retention package to Credit Suisse's Asia staff in Hong Kong town hall which focuses on stabilising the Credit Suisse Asia team and boosting banker confidence, according to sources. Credit Suisse (CSGN SW) and UBS (UBSG SW) are among the banks facing a US Russia-sanctions probe. Fed Balance Sheet: 8.784tln (prev. 8.689tln); Total factors supplying reserve funds 8.784tln (prev. 8.689tln); Loans 354.191bln (prev. 318.148bln); Bank Term Funding Program 53.669bln (prev. 11.943bln); Other credit extensions 179.8bln (prev. 142.8bln). FX The USD is benefitting from the marked risk-off move with the index surpassing 103.00 from a 102.50 base in short-order and extending further to a 132.25+ peak since. Action which comes to the detriment of peers ex-JPY, as USD/JPY has been lower by roughly a full point at worse (best) given its haven allure and with JPY repatriation factoring. Notably, CHF is outperforming its peers, ex-JPY, but is still softer overall as its proximity/exposure to the European banking situation continues to overshadow traditional haven status vs USD though it is markedly outperforming the EUR as the focus is on EZ banks this morning. As such, EUR is the standout laggard with EUR/USD down to a 1.0722 trough vs initial 1.0830 best, antipodeans are similarly hampered given their high-beta status and after Thursdays firmer action. Cable failed to see a lasting benefit from the morning's retail data while the subsequent PMIs were slightly softer than expected; but, again, the action is very much USD-driven. PBoC set USD/CNY mid-point at 6.8374 vs exp. 6.8367 (prev. 6.8709) Fixed Income Core benchmarks are experiencing a marked bid given the risk-off price action that we are seeing with an accompanying dovish re-pricing being seen for Central Banks. Specifically, Bunds have surpassed 139.50 and USTs above 1.17 with the respective 10yr yields down to 2.02% and 3.29% with market pricing in favour of an unchanged outcome at the next ECB and Fed meetings as such. Gilts are moving in tandem with EGB/UST peers and have eclipsed 107.00; BoE pricing is now heavily in favour of an unchanged outcome at the May meeting. Commodities Commodities diverge given the marked risk-off action with crude and base metals pressured while precious metals glean incremental support as the USD offsets the benefit of haven demand. Specifically, WTI and Brent are under USD 68.00/bbl and USD 74.00/bbl respectively which places them at the mid/lower-end of the current WTD USD 64.12-71.67/bbl and USD 70.12-77.44/bbl parameters. Spot gold is incrementally firmer though is yet to convincingly surpass USD 2k/oz while base metals are dented by the aforementioned tone with 3-month LME Copper slipping further below 9k to a USD 8940 low. Russia could recommend a temporary halt to wheat and sunflower exports, via Vedomosti; due to the sharp decline in prices. US base at North-east Syria's Al-Omar oil field has been targeted in an attack, according to security sources cited by Reuters. UBS maintains a positive outlook on Gold and targets USD 2050/oz by the end of the year. Geopolitics Ukraine's top ground forces commander said Ukrainian troops are to launch a counterassault soon as Russia's large winter offensive weakens without capturing the eastern city of Bakhmut, according to Reuters. Russian Security Council Deputy Chairman Medvedev says cannot rule out that Russian forces will need to reach Kyiv or Lviv to 'destroy the infection', according to RIA. US Pentagon said the US conducted air strikes in Syria which targeted an Iranian-backed group in response to a deadly UAV attack, according to Reuters and Wall Street Journal. US Treasury Secretary Yellen said sanctions on Iran have created a real economic crisis in that country and the US is constantly looking at ways to strengthen Iran sanctions but added that sanctions may not be sufficient to change a country's behaviour, according to Reuters. China's Defence Ministry said it monitored and drove away a US destroyer which entered the South China Sea Paracel Islands on Friday again and sternly demands the US to immediately stop such provocations, according to Reuters. North Korea said it conducted an important weapon test and firing drill from March 21st-23rd, while it added that it conducted a new underwater attack system in which it tested a new nuclear underwater attack drone and launched strategic cruise missiles. Furthermore, North Korea said its leader Kim guided the military activities and that Kim seriously warned enemies to stop reckless anti-North Korea war drills, according to KCNA. South Korean President Yoon said they will step up security cooperation with the US and Japan against North Korea's nuclear and missile provocations, while he said they will make sure North Korea pays the price for its reckless provocations, according to Reuters. US Event Calendar 08:30: Feb. Durable Goods Orders, est. 0.2%, prior -4.5% 08:30: Feb. -Less Transportation, est. 0.2%, prior 0.8% 08:30: Feb. Cap Goods Orders Nondef Ex Air, est. -0.2%, prior 0.8% 08:30: Feb. Cap Goods Ship Nondef Ex Air, est. 0.2%, prior 1.1% 09:45: March S&P Global US Manufacturing PM, est. 47.0, prior 47.3 09:45: March S&P Global US Services PMI, est. 50.2, prior 50.6 09:45: March S&P Global US Composite PMI, est. 49.5, prior 50.1 10:00: Revisions: Wholesale Inventories 11:00: March Kansas City Fed Services Activ, prior 1 DB's Jim Reid concludes the overnight wrap There's a bad bout of conjunctivitis going round the school at the moment and every member of the family has now had it with the last hold out being me until yesterday. So my eyes are a bit blurry this morning looking at screens. One of the twins believes he has conjunctiv"eye-test" as he thinks it's called. If he hadn't given it to me I'd think he was quite sweet. As I was looking at screens last night through weepy eyes, markets looked like they were trying to normalise. However late weakness in financials again was a big drag on the last couple of hours of US trading. Just after the European close, the S&P 500 was up over +1.2% and looked set to reverse a good portion of the previous day’s losses. However by the end of the session, further weakness in banks and cyclicals more broadly left the index only +0.30%, but having been down nearly half a percent with 30 minutes left in trading. The VIX, which intraday was near its lowest level (20.18) since the SVB issues became prominent, ended the day 0.35pts higher at 22.6. Today we'll see if the flash PMIs around the world are impacted by the early part of the mini banking crisis we've seen in the last two weeks. So watch the European and US numbers carefully. The renewed weakness in banks yesterday actually started in Europe with the STOXX Banks index down -2.27%. The STOXX 600 recovered from an intraday low of almost -1.0% to finish -0.21% lower overall. CDS markets highlighted the stress in European financials as the Subordinated Financial CDS index widened (+20bps) for the first time since last Friday – before the CS-UBS merger news – while the Senior CDS index was +9bps wider. In the US, the Regional bank ETF, KRE, was down -2.78% yesterday whilst the broader KBW Bank index was -1.73% lower as liquidity concerns of the smaller banks continue to permeate. Staying with bank liquidity, after the US close last night, the Fed’s weekly balance sheet data showed that the use of the Fed’s discount window was down from $153bn to $110bn, while the credit deployed to SVB and Signature was up from 143bn to 180bn, and lastly the new emergency bank lending facility (BTFP) was up from $12bn to $54bn. So net of the two failed banks there was little change, indicating that banks were not finding it necessary to access cheap capital. The market should look favourably on that from a contagion standpoint. Overnight S&P and Nasdaq futures are both up around +0.2% and 2 and 10yr UST yields are both around -4.5bps lower as we go to press. Far before that balance sheet data came out the S&P 500 opened much stronger, up +1.8% and stayed buoyant through the first three hours of trading, before the weakness in regional banks weighed on overall sentiment throughout the US afternoon. This was most pronounced with a bout of selling just before Treasury Secretary Yellen spoke in front of a House of Representatives subcommittee an hour or so before the US close. The selling might have been nervousness ahead of her remarks, given the negative market reaction to her comments before the Senate on Wednesday. Regardless, the S&P actually saw a +1.0% whipsaw move when Yellen said that the US government was “prepared for additional deposit action if warranted.” This was quickly faded, with the index continuing to trade between smaller gains and losses until it ended the day +0.30% higher. Despite the weakness in banks and Energy (-1.4%) on the back of lower oil prices, the S&P finished in the green thanks to Tech stocks outperforming on the lower rate outlook. The FANG+ index surged by +2.53%, whilst the NASDAQ 100’s gains (+1.19%) mean it’s now up nearly 20% from its lows at the end of December, almost meeting the traditional definition of a bull market. On the rates side, 10yr Treasury yields held up for the most part, with the 10yr yield -0.08bps to 3.427%. Short-dated rates were another story, with 2yr yields -10.4bps lower to 3.833% fully on the back of lower inflation expectations (-13.3bps), while 5yr rates were -7.2bps lower. This saw the 2s10s yield curve normalise a further +9.4bps yesterday to -41.3bps, which is the least inverted the curve has been in over 5 months. This drop in yields led by inflation expectations was also borne out in fed future pricing, where the market now only sees a 40% chance of a 25bp hike during the May meeting. In Europe there was a sharp decline in longer dated yields that accelerated later in the session, with yields on 10yr bunds (-13.3bps), OATs (-12.3bps) and BTPs (-10.4bps) all moving lower. Furthermore, those moves came in spite of some of the ECB’s hawks calling for further tightening. For example, Austria’s Holzmann said that the ECB would “probably have to add” to its rate hikes at the next meeting in May. And the Netherlands’ Knot said that “I still think that we need to make another step in May, but I don’t know the size of that”. Speaking of central banks, we had the Bank of England’s latest decision yesterday, who hiked rates by 25bps as expected. That takes the Bank Rate up to a post-2008 high of 4.25%, and 7 of the 9 MPC members were in support, with the other 2 preferring to remain on hold. Looking forward, the BoE said that they still expected inflation “to fall significantly” in Q2, aided by falling energy prices and the government’s move to extend the Energy Price Guarantee in last week’s budget. And when it comes to inflationary pressures, they said that if “there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required.” In his review (link here), our UK economist writes that while he sees some upside to growth and pay, there are downsides to services CPI and credit conditions, making the next meeting in May a difficult decision to call. On balance, he sees more downside risks than upside, and holds onto his call for the Bank Rate to remain where it is at 4.25%, with the risks tilted to one further hike. Whilst we’re on central banks, yesterday also saw the Swiss National Bank hike rates by 50bps, taking the policy rate up to 1.5%. There were a number of hawkish-leaning details, including an upgrade in their inflation forecast relative to December, and their statement said that inflation was “still clearly above the range the SNB equates with price stability.” In the meantime, SNB President Jordan said that a “Credit Suisse bankruptcy would have had serious consequences for national and international financial stability and for the Swiss economy” and that “taking this risk would have been irresponsible.” This morning in Asia equity markets are lower with the KOSPI (-0.72%) the biggest underperformer with the Nikkei (-0.41%), the Shanghai Composite (-0.54%), the CSI (-0.27%) and the Hang Seng (-0.21%) trading in negative territory. Data from Japan has shown that consumer price inflation (+3.3% y/y) slowed in line with forecasts but for the first time in 13 months in February, compared to a +4.3% increase in January, mainly due to the effect of government’s energy subsidy program. At the same time, core-core CPI (excluding both fresh food and fuel costs) advanced further to +3.5% y/y in February (v/s +3.4% expected), notching the fastest y-o-y gain since January 1982. It followed a +3.2% increase in January highlighting the underlying inflationary pressures. Staying with Japan, the preliminary estimate for manufacturing PMI showed that sector activity remained in contraction for the fifth consecutive month in March after the reading came in at 48.6, albeit up from the previous month’s final reading of 47.7 as output and new orders remained under pressure. On the contrary, activity in the services sector expanded for the seventh straight month in March as the PMI edged up to 54.2, recording the fastest pace since October 2013, against prior month's reading of 54.0. Elsewhere, manufacturing as well as services in Australia slipped into contractionary territory as the manufacturing PMI fell to 48.7 in March from 50.5 in February with the services PMI deteriorating to 48.2 from the prior print of 50.7. When it came to yesterday’s data, the US weekly initial jobless claims came in at a 3-week low of 191k over the week ending March 18 (vs. 197k expected), pointing to continued strength in the labour market. Continuing claims saw a small increase to 1694k (1690k expected) and remains in a slight up-trend but not at a concerning level yet. Meanwhile, the new home sales data for February showed a modest rise to an annualised rate of 640k (vs. 650k expected), taking them up to a 6-month high. Over in the Euro Area, the European Commission’s preliminary consumer confidence data for March showed a decline to -19.2 (vs. -18.2 expected), marking a reduction after 5 consecutive monthly improvements. To the day ahead now, and data releases include the March flash PMIs from Europe and the US, along with UK retail sales for February, and the preliminary US durable goods orders for February. Otherwise from central banks, we’ll hear from the ECB’s De Cos, Nagel and Centeno, the Fed’s Bullard and the BoE’s Mann. Tyler Durden Fri, 03/24/2023 - 08:09.....»»

Insider's George Glover gives you the rundown on the banking crisis' latest twist: UBS rescuing its old foe Credit Suisse. Good morning, readers. Markets reporter George Glover here, writing to you from London while my colleague Phil Rosen is off on a well-deserved vacation.You've probably already clocked that the biggest story in markets right now is happening on this side of the Atlantic, with investors still mulling over UBS's $3 billion rescue of its old foe Credit Suisse.Today, I'm unpacking the biggest winners and losers from the takeover.UBS itself looks set to benefit as it's now "the world's safest bank" for depositors, according to one analyst. But there's a bunch of losers from the historic deal as well — including the Saudi National Bank, the Federal Reserve, and investors who hold a little-known type of high-risk Credit Suisse bonds.If this was forwarded to you, sign up here. Download Insider's app here.UBS agreed to buy its longtime rival Credit Suisse for $3 billion on Sunday.Arnd Wiegmann/Reuters1. There's one big winner — and lots of losers — from the Credit Suisse rescue deal. UBS stands out as the biggest beneficiary from the takeover. It's managed to snap up a longtime rival at a fraction of its market value, with backing from its own government and the Swiss central bank."Under normal circumstances, I would say it is an absolutely fantastic deal for UBS," Morningstar equity analyst Johann Scholtz said Monday, per Reuters. "In the current environment, it is a bit more complicated as there is a lot of uncertainty generally in the markets."Some of the world's biggest investors are suffering, including the Saudi National Bank, which loaded up on Credit Suisse stock for 3.82 Swiss francs ($4.12) a share back in November. The deal announced Sunday afternoon valued Credit Suisse shares at just 0.76 Swiss francs, one-fifth of the price the Saudi National Bank paid.Other losers include holders of Credit Suisse's Additional Tier 1 bonds, which are special bonds that can be converted into shares if a bank's financial health falls below a certain level. The Swiss regulator said Sunday that it'd mark 16 billion francs ($17 billion) worth of Credit Suisse AT1s down to zero — and that's weighed on other European bank stocks that issue similar bonds.Lastly, the merger between UBS and Credit Suisse could be bad news for the Fed. As my colleague Theron Mohamed points out, the central bank is now caught between a rock and a hard place. If it pauses its interest-rate hiking campaign to shore up the banking system, inflation could start spiraling again — but if it raises borrowing costs, embattled banks like First Republic could start feeling the heat.In other news:Warren Buffett is reportedly in talks with the White House to invest in struggling regional banks.Jemal Countess/Getty Images2. US stock futures edge higher Tuesday morning as hopes grow that the worst of the banking crisis is over. Eyes are turning to the Fed meeting later today, as investors wait to see whether the turmoil will prompt a shift on interest-rate hikes. Here are the latest market moves.3. Earnings on deck: Nike, HealthEquity, and more, all reporting.4. Bank of America says to load up on these stocks with a recession looming. US equity strategist Jill Carey Hall said an economic downturn will boost pizza restaurants, low price gyms like Planet Fitness, and value-for-money retailers. Here are 22 recession-proof stocks that the bank has given a "buy" rating.5. Investors don't know what Jerome Powell is going to do next. Traders have started scaling back their rate-hike bets ahead of Wednesday's big announcement — but they're divided on whether the Fed will raise borrowing costs by 25 basis points or "pause" its tightening campaign. Here's how the Credit Suisse rescue deal impacts the central bank.6. Warren Buffett might swoop in to save the banks once again. The Berkshire Hathaway CEO made vital investments in Goldman Sachs and General Electric in late 2008 – and is reportedly in talks with senior White House officials to provide similar support to struggling regional banks. Buffett might not make as much money this time round, though.7. Bitcoin soared to a nine-month high after the takeover deal was announced. Analysts including Fundstrat's Sean Farrell see the cryptocurrency as a hedge against the embattled banking system. Bitcoin hit its highest level since June 2022 Monday and was trading just below $28,000 at last check.8. Two real-estate investors who've "flipped" 91 properties shared their top tips. Aria Khosravi and Alan Blue lost $9,000 on their second deal over a decade ago – but they've since built a seven-figure business. Here are three lessons they've learnt buying and selling houses over the past 14 years.9. These stocks are rapidly boosting their market share thanks to AI and other disruptive tech. Portfolio manager Jason Tauber runs Neuberger Berman's Disrupters ETF. Here are his fund's top 10 weighted holdings right now.Markets Insider10. First Republic shares fell 47% to hit a record low Monday. The San Francisco-based lender's share price has plunged during the ongoing banking crisis – and S&P Global just slashed its credit rating for the second time in the space of a week despite it crafting a $30 billion rescue plan. Read more.Curated by George Glover in London. Feedback or tips? Tweet @GTAGlover or email gglover@insider.com.Edited by Anil Varma (@AnilVarma7717) and Hallam Bullock (@hallam_bullock) in London.Read the original article on Business Insider.....»»

Morgan Stanley's top strategist said the fallout in the banking sector starts what's likely to be the "vicious" end to the bear market in stocks. Stock tradersDrew Angerer/Getty Images US stocks closed higher Monday as investors tried to navigate uncertainty in the banking system.  UBS' takeover of Credit Suisse over the weekend cooled some fears of a wider crisis.  Morgan Stanley said recent bank failures mark what's likely to be a "vicious" end to the bear market. US stocks rallied on Monday as traders digested efforts to contain a banking crisis and braced for the next policy decision from Federal Open Market Committee meeting this week.Over the weekend, UBS agreed to acquire Credit Suisse for $3.25 billion at the urging of the Swiss government. This was in an effort to shore up confidence in the banking system following a series of financial hits to the embattled European lender. The forced marriage between the two institutions follows the failures of Silicon Valley Bank and Signature Bank earlier this month, which ignited a crisis of confidence in the banking system. "With the takeover of Credit Suisse by UBS, a solution has been found to secure financial stability and protect the Swiss economy in this exceptional situation," the Swiss National Bank said in a statement released Sunday.In the US, First Republic Bank shares tanked as much as 50% following a report from the Wall Street Journal that JPMorgan chief Jamie Dimon was leading talks among banks to provide more financial aid to stabilize the struggling lender.  Morgan Stanley's top equity strategist, Mike Wilson, said the fallout in the banking sector marks what's likely to be the start of a "vicious" and painful end to the bear market for equities. "This is exactly how bear markets end — an unforeseen catalyst that is obvious in hindsight forces market participants to acknowledge what has been right in front of them the entire time," Wilson wrote in a note to clients.Federal Reserve officials on Tuesday will gather for the two-day policy meeting. Views are split on if the Fed will deliver another interest rate hike or pause to avoid adding to the pain already being heaped on the financial sector by the ongoing bank crisis. Here's where US indexes stood shortly after the close at 4:00 p.m. on Monday:S&P 500:3,951.57, up 0.89%Dow Jones Industrial Average: 32,244.58, up 1.2% (382.60 points)Nasdaq Composite: 11,675.54, up 0.39%Here's what else happened today:A top BlackRock strategist said it's too early to call a stock market bottom because there's "more pain" headed for smaller banks. Here are four signals to watch in order to know when the banking crisis has ended for the stock market.Insider breaks down the most notable winners and losers of the UBS and Credit Suisse takeover deal.Here's what it was like at the New York Stock Exchange the day Silicon Valley Bank collapsed, according to Wall Street's most-famous trader. In commodities, bonds and crypto:West Texas Intermediate crude oil rose 1.24% to $67.57 per barrel. Brent crude, oil's international benchmark, was up 1.1% to trade at $73.75.Gold rose 0.5% to $1,983.70 per ounce.The yield on the 10-year Treasury rose 10 basis points to 3.50%.Bitcoin fell 2% to $27,867.Read the original article on Business Insider.....»»

First Republic shares sank Monday on news that big banks were in talks to provide yet another infusion of capital to shore up the regional lender. A pedestrian walks by the First Republic Bank headquarters on March 13, 2023 in San Francisco, California.Justin Sullivan/Getty Images First Republic Bank stock plunged as much as 50% Monday.  The WSJ reported that big banks were in talks to provide more aid to the struggling lender.   Over the weekend, S&P slashed First Republic's credit rating deeper into junk status.  First Republic Bank shares tanked as much as 50% on Monday following a report from the Wall Street Journal that big banks were gearing up to provide even more aid to the bank, a week after 11 firms banded together to pour $30 billion into the struggling lender. Shares of the San Francisco-based bank were already down 25% earlier in the day on a fresh credit rating downgrade from S&P Global and fears of wider banking sector contagion amid UBS's emergency takeover of Credit Suisse. The stock traded as low as $11.52 before paring some losses. Shares were down 33%, trading at $15.39, as of 12:45 p.m. ET. The stock has lost more than 80% of its value this month. According to the WSJ report, JPMorgan CEO Jamie Dimon is leading the new effort to stabilize the bank, and the plan could involved converting last week's $30 billion deposit into a fresh capital infusion. Elsewhere amid the banking turmoil, UBS on Sunday closed a deal with its rival Credit Suisse to prevent the latter's collapse. The deal values the embattled Swiss banking giant at around $3.25 billion."Given recent extraordinary and unprecedented circumstances, the announced merger represents the best available outcome," Axel P. Lehmann, chairman of Credit Suisse, said in a statement. "This has been an extremely challenging time for Credit Suisse and while the team has worked tirelessly to address many significant legacy issues and execute on its new strategy, we are forced to reach a solution today that provides a durable outcome."Adding to First Republic's woes was another cut to its credit ratings by S&P Global Ratings. This moves the lender's debt deeper into junk status, citing concerns that a recently unveiled $30 billion rescue plan may not save the embattled bank.While the deposit injection by 11 banks, including Wall Street giants like JPMorgan, Bank of America and Morgan Stanley, may ease short-term liquidity pressures, it "may not solve the substantial business, liquidity, funding, and profitability challenges that we believe the bank is now likely facing," S&P said. That's the second time in four days that S&P downgraded First Republic. All of the agency's ratings on the bank have "negative implications," it said, warning more downgrades are possible.First Republic is also looking to raise money from other banks or private equity firms by selling new shares despite a $30 billion rescue plan, the New York Times reported, in a sign of the bank's liquidity issues that could be adding further pressure on its stock. Read the original article on Business Insider.....»»

Regional bank shares remained under pressure as investors eye further contagion risk. First Republic stock fell after its credit rating was slashed again. Photo by TIMOTHY A. CLARY/AFP via Getty Images) US stocks were mixed as traders assess the impact of UBS' takeover of Credit Suisse. First Republic Bank fell 16% as S&P Global cut its credit rating yet again. Morgan Stanley's Mike Wilson said bank turmoil marks the start of a "vicious" end to the bear market. US stocks were mostly higher on Monday following a takeover deal of Credit Suisse by UBS over the weekend in an effort to calm concerns of a global banking crisis. On Sunday, UBS bought its smaller rival for $3.25 billion at the urging of regulators eager to shore up confidence in the country's banking system. "With the takeover of Credit Suisse by UBS, a solution has been found to secure financial stability and protect the Swiss economy in this exceptional situation," the Swiss National Bank said in a statement published Sunday afternoon.UBS stock was up 8% in the US, while Credit Suisse's US-listed shares dropped by 50% in morning trades.  In the US, shares of regional banks parred some losses as traders assessed contagion concerns after the collapse of Silicon Valley Bank earlier this month. First Republic Bank plunged 16% after the opening bell as S&P Global cut its credit rating yet again.Mike Wilson, a top strategist at Morgan Stanley, said the failure in the banking sector markets the start of a "vicious" end to the bear market for stocks. "This is exactly how bear markets end — an unforeseen catalyst that is obvious in hindsight forces market participants to acknowledge what has been right in front of them the entire time," Wilson wrote in a note to clients.Here's where US indexes stood shortly after 9:30 a.m. on Monday:S&P 500: 3,926.14, up 0.24%Dow Jones Industrial Average: 32,053.26, up 0.6% (191.28 points)Nasdaq Composite: 11,589.39, down 0.34%Here's what else is happening today:UBS is set to acquire Credit Suisse for $3.2 billion, but deal could make the banking crisis worse.Here are the biggest winners and losers of the historic Credit Suisse and UBS takeover deal. Wall Street's most famous trader told Insider what it was like at the New York Stock Exchange the day Silicon Valley Bank collapsed,In commodities, bonds and crypto:West Texas Intermediate crude oil fell 0.12% to $66.66 per barrel. Brent crude, oil's international benchmark, dropped 0.3% to $72.80.Gold rose 0.6% to $1,985.60 per ounce.The yield on the 10-year Treasury ticked up three basis points to 3.43%.Bitcoin rose 3.16% to $26,651, while ether jumped 1.86% to $1,744. Read the original article on Business Insider.....»»

UBS To Buy CS For $3 Billion As AT1 Bonds Get Wiped Out In Record Bail-In; Swiss Govt Grants CHF9BN Guarantee; SNB Offers $100 Billion Liquidity Backstop Update (1500ET): We finally have a deal, and what was at first a CHF1 BN acquisition priceof Credit Suisse by UBS, which then rose to CHF 2 BN, has now cranked up one final time to CHF 3BN (US$3.25 billion), or 0.76 per share, specifically shareholders of Credit Suisse will receive 1 share in UBS for 22.48 shares in Credit Suisse. As part of the deal, the Swiss National Bank is offering a 100 billion-franc liquidity assistance to UBS while the government is granting a 9 billion-franc guarantee for potential losses from assets UBS is taking over, i.e., this is a taxpayer-backed bailout. More importantly, however, the bank's entire AT1 tranche - some CHF16BN of Additioanal Tier 1 (AT1) bonds, a $275BN market - will be bailed in and written down to zero, to wit: "FINMA has determined that Credit Suisse’s Additional Tier 1 Capital (deriving from the issuance of Tier 1 Capital Notes) in the aggregate nominal amount of approximately CHF 16 billion will be written off to zero." This wipe out, pardon, bail-in is the biggest loss yet for Europe’s $275 billion AT1 market, far eclipsing the approximately €1.35 billion loss suffered by junior bondholders of Spanish lender Banco Popular SA back in 2017, when it was absorbed by Banco Santander SA to avoid a collapse. AT1 bonds were introduced in Europe after the global financial crisis to serve as shock absorbers when banks start to fail. They are designed to impose permanent losses on bondholders or be converted into equity if a bank’s capital ratios fall below a predetermined level, effectively propping up its balance sheet and allowing it to stay in business. As Bloomberg notes, investors had been concerned that a so-called bail-in would result in the AT1s being written down, while senior debt issued by the holding company, Credit Suisse would be converted into equity for the bank. In retrospect, they were right to be worried... meanwhile equityholders get CHF3 billion; we are confident Swiss pensions will be delighted they are getting a doughnut while the Saudis get a not immaterial recovery. PIMCO, Invesco and BlueBay Funds Management SA were among the many asset managers holding Credit Suisse AT1 notes. Pimco and BlueBay declined to comment when contacted by Bloomberg News on Friday, before the deal was announced. A spokeswoman for Invesco said that “due to portfolio disclosure policies, we wouldn’t disclose any current movements in portfolios but our investment teams are continuing to monitor developments and prudently managing our clients’ assets in light of current market conditions.” The bonds were by Friday already trading at levels usually reserved for companies about to go bust. A slice of the bank’s $1.65 billion note, issued less than a year ago, changed hands at about 35 cents on the dollar, according to trade reporting system Trace. And while it may be counterintuitive, according to the Swiss bail-in regime, AT1 debt is above equity in the loss absorption waterfall. Source: Credit Suisse According to Bloomberg, pricing fluctuated on Sunday as traders weighed two contrasting scenarios: either the regulator would nationalize part or the whole bank, possibly writing off Credit Suisse’s AT1 bonds entirely, or a UBS buyout with potentially no losses for bondholders. Well, as of this moment, those bonds have been Lehmaned, or rather Lehmanned in honor of the CS Chairman. Here is the full press release from Credit Suisse with final terms of the deal: Credit Suisse and UBS have entered into a merger agreement on Sunday following the intervention of the Swiss Federal Department of Finance, the Swiss National Bank and the Swiss Financial Market Supervisory Authority FINMA (FINMA). UBS will be the surviving entity upon closing of the merger transaction. Under the terms of the merger agreement all shareholders of Credit Suisse will receive 1 share in UBS for 22.48 shares in Credit Suisse. Until consummation of the merger, Credit Suisse will continue to conduct its business in the ordinary course and implement its restructuring measures in collaboration with UBS. The Swiss National Bank will grant Credit Suisse access to facilities that provide substantial additional liquidity. On March 19, 2023, Swiss Federal Department of Finance, the Swiss National Bank and FINMA have asked Credit Suisse and UBS to enter into the merger agreement. Pursuant to the emergency ordinance which is being issued by the Swiss Federal Council, the merger can be implemented without approval of the shareholders. The consummation of the merger remains subject to customary closing conditions. Credit Suisse and UBS have entered into a merger agreement on Sunday with UBS being the surviving entity. After negotiations that took place during the weekend leading up to the signing of the merger agreement, UBS and Credit Suisse concluded that it would be in the best interest of their shareholders and their stakeholders to enter into the merger. This move comes after the Swiss Federal Department of Finance, the Swiss National Bank and FINMA asked both companies to conclude the transaction to restore necessary confidence in the stability of the Swiss economy and banking system. The merger transaction provides for the following key terms: All shareholders of Credit Suisse will receive 1 share in UBS for 22.48 shares in Credit Suisse as merger consideration. This exchange ratio reflects a merger consideration of CHF 3 billion for all shares in Credit Suisse. The merger transaction remains subject to customary closing conditions. Both parties are confident that all conditions can be met. The merger is expected to be consummated by end of 2023 if possible. The Swiss National Bank will grant Credit Suisse access to facilities that provide substantial additional liquidity. For the purpose of a seamless integration of Credit Suisse into UBS, UBS is expected to appoint key personnel to Credit Suisse as soon as legally possible. Credit Suisse continues to operate in the ordinary course of business and implement its restructuring measures in collaboration with UBS. UBS has expressed its confidence that the employment of the staff of Credit Suisse will be continued. On Sunday, Credit Suisse has been informed by FINMA that FINMA has determined that Credit Suisse’s Additional Tier 1 Capital (deriving from the issuance of Tier 1 Capital Notes) in the aggregate nominal amount of approximately CHF 16 billion will be written off to zero. In consideration of the unique circumstances affecting the Swiss economy as a whole, the Swiss Federal Council is issuing an emergency ordinance (Notverordnung) tailored to this particular transaction. Most importantly, the merger will be implemented without the otherwise necessary approval of the shareholders of UBS and Credit Suisse to enhance deal certainty. Axel P. Lehmann, Chairman of the Board of Directors of Credit Suisse said: “Given recent extraordinary and unprecedented circumstances, the announced merger represents the best available outcome. This has been an extremely challenging time for Credit Suisse and while the team has worked tirelessly to address many significant legacy issues and execute on its new strategy, we are forced to reach a solution today that provides a durable outcome.” And here is the press release from UBS's side, which repeat all of the above and informs us that "the combination of the two businesses is expected to generate annual run-rate of cost reductions of more than USD 8 billion by 2027." Translation: virtually all CS workers will be laid off.  UBS to Acquire Credit Suisse Creates leading global wealth manager with USD 5 trillion of invested assets across the Group Extends UBS lead in Swiss home market UBS strategy unchanged, including focus on growth in Americas and APAC Attractive financial terms which include downside protection Annual run-rate of cost reduction of more than USD 8 billion expected by 2027 UBS remains strongly capitalized well above our target of 13% and committed to progressive cash dividend policy A focused Investment Bank, remaining committed to UBS’s model; strategic Global Banking businesses to be retained, majority of Credit Suisse markets positions moved to non-core UBS plans to acquire Credit Suisse. The combination is expected to create a business with more than USD 5 trillion in total invested assets and sustainable value opportunities. It will further strengthen UBS’s position as the leading Swiss-based global wealth manager with more than USD 3.4 trillion in invested assets on a combined basis, operating in the most attractive growth markets. The transaction reinforces UBS’s position as the leading universal bank in Switzerland. The combined businesses will be a leading asset manager in Europe, with invested assets of more than USD 1.5 trillion. UBS Chairman Colm Kelleher said: “This acquisition is attractive for UBS shareholders but, let us be clear, as far as Credit Suisse is concerned, this is an emergency rescue. We have structured a transaction which will preserve the value left in the business while limiting our downside exposure. Acquiring Credit Suisse’s capabilities in wealth, asset management and Swiss universal banking will augment UBS’s strategy of growing its capital-light businesses. The transaction will bring benefits to clients and create long-term sustainable value for our investors.” UBS Chief Executive Officer Ralph Hamers said: “Bringing UBS and Credit Suisse together will build on UBS’s strengths and further enhance our ability to serve our clients globally and deepen our best-in-class capabilities. The combination supports our growth ambitions in the Americas and Asia while adding scale to our business in Europe, and we look forward to welcoming our new clients and colleagues across the world in the coming weeks.” The discussions were initiated jointly by the Swiss Federal Department of Finance, FINMA and the Swiss National Bank and the acquisition has their full support. Under the terms of the all-share transaction, Credit Suisse shareholders will receive 1 UBS share for every 22.48 Credit Suisse shares held, equivalent to CHF 0.76/share for a total consideration of CHF 3 billion. UBS benefits from CHF 25 billion of downside protection from the transaction to support marks, purchase price adjustments and restructuring costs, and additional 50% downside protection on non-core assets. Both banks have unrestricted access to the Swiss National Bank existing facilities, through which they can obtain liquidity from the SNB in accordance with the guidelines on monetary policy instruments. The combination of the two businesses is expected to generate annual run-rate of cost reductions of more than USD 8 billion by 2027. UBS Investment Bank will reinforce its global competitive position with institutional, corporate and wealth management clients through the acceleration of strategic goals in Global Banking while managing down the rest of Credit Suisse’s Investment Bank. The combined investment banking businesses accounts for approximately 25% of Group risk weighted assets. UBS anticipates that the transaction is EPS accretive by 2027 and the bank remains capitalized well above its target of 13%. Colm Kelleher will be Chairman and Ralph Hamers will be Group CEO of the combined entity. The transaction is not subject to shareholder approval. UBS has obtained pre-agreement from FINMA, Swiss National Bank, Swiss Federal Department of Finance and other core regulators on the timely approval of the transaction. Finally, the clowns responsible for the global banking crisis have decided it's their turn to chime in. * * * Update (1430ET): The Swiss government, SNB and various regulators hold an ad hoc press conference on the Credit Suisse takeover by UBS. During the press conference, the Swiss president says the surge in deposit outflows on Friday showed that stabilization of Credit Suisse was necessary, i.e., the bank would have collapsed absent a takeover by a larger bank. And here are some more highlights from the presser: *KELLER-SUTTER: SOLUTION WILL STABILIZE CS, FINANCIAL MARKETS *KELLER-SUTTER: TOP PRIORITY WAS INTERESTS OF SWITZERLAND *KELLER-SUTTER: GUARANTEE ONLY KICKS IN ON CERTAIN THRESHOLD *CREDIT SUISSE TAKEOVER TO TRIGGER CHF16B WRITEDOWN ON AT1S *JORDAN: BANKRUPTCY OF CS WOULD HAVE HAD SEVERE CONSEQUENCES *JORDAN: CS BANKRUPTCY TO HAVE SEVERELY DAMAGED SWISS REPUTATION *JORDAN: US BANKING CRISIS AGGRAVATED CREDIT SUISSE CRISIS *JORDAN: SNB TO PROVIDE LIQUIDITY IF NEEDED Here is the full SNB statement: Swiss National Bank provides substantial liquidity assistance to support UBS takeover of Credit Suisse UBS today announced the takeover of Credit Suisse. This takeover was made possible with the support of the Swiss federal government, the Swiss Financial Market Supervisory Authority FINMA and the Swiss National Bank. With the takeover of Credit Suisse by UBS, a solution has been found to secure financial stability and protect the Swiss economy in this exceptional situation. Both banks have unrestricted access to the SNB’s existing facilities, through which they can obtain liquidity from the SNB in accordance with the ‘Guidelines on monetary policy instruments’. In addition, and based on the Federal Council’s Emergency Ordinance, Credit Suisse and UBS can obtain a liquidity assistance loan with privileged creditor status in bankruptcy for a total amount of up to CHF 100 billion. Furthermore, and based on the Federal Council’s Emergency Ordinance, the SNB can grant Credit Suisse a liquidity assistance loan of up to CHF 100 billion backed by a federal default guarantee. The structure of the loan is based on the Public Liquidity Backstop (PLB), the key parameters of which were already decided by the Federal Council in 2022. The substantial provision of liquidity will ensure that both banks have access to the necessary liquidity. By providing substantial liquidity assistance, the SNB is fulfilling its mandate to contribute to the stability of the financial system, and it continues to work closely with the federal government and FINMA to this end. * * * Update (1415ET): As attention turns to the bailoutee, it appears that the market is not convinced that not even the SNB's $100BN liquidity backstop will be sufficient as UBS Credit Default Swaps are starting to move in the wrong direction, and during Sunday's emergency trading session, BBG reports that UBS CDS have widened by at least 40bps (so far) to 215 bps for five-year contracts. Should this move accelerate, the deal MAC may still be triggered and the deal could fall apart. * * * Update (1300ET): The Financial Times reports that UBS has agreed to buy Credit Suisse after increasing its offer to more than $2bn, with Swiss authorities poised to change the country’s laws to bypass a shareholder vote on the transaction as they rush to finalize a deal before Monday. The purchase price is a fraction of the $8 billion market cap the company was valued at on Friday's close; it means that UBS will now pay slightly more than CHF0.50 a share in its own stock, up from a bid of SFr0.25 earlier today, but far below Credit Suisse’s closing price of CHF1.86 on Friday. We also learn that UBS agreed to a softening of a material adverse change clause that would void the deal if its credit default spreads jump; it wasn't immediately clear if that entire clause was scrapped or if the CDS trigger was merely pulled wider. UBS shareholders - who will not be consulted on the deal which will circumvent normal corporate governance rules by preventing a UBS shareholder vote - are angry. As FT notes, Vincent Kaufmann, chief executive of Ethos Foundation, which represents Swiss pension funds that own between 3% and 5% of Credit Suisse and UBS, told the Financial Times that the move to bypass a shareholder vote on the deal was poor corporate governance. “I can’t believe our members and UBS shareholders will be happy about this,” he said. “I have never seen such measures taken; it shows how bad the situation is.”  As a reminder, here is a list of the 40 biggest investors. Finally, The Wall Street Journal reports that, in an effort to smooth the deal, the Swiss National Bank has offered UBS a whopping $100 billion in liquidity to help it take on Credit Suisse’s operations, In other words, the Swiss government has extended a liquidity line equal to ~$11.5MM on a per capita basis: said otherwise, every family of 4 is backstopping almost $50MM in UBS assets. Using UBS to save Credit Suisse marks a turnaround from nearly 15 years ago, when Switzerland bailed out UBS after it got stuck with billions of toxic assets in its U.S. business. Credit Suisse declined state aid at the time and emerged from the crisis in stronger shape.  *  *  * Update (10:30am ET):  So much for Credit Suisse thinking it has leverage by balking at the proposed CHF0.25 offer from UBS. Just hours after it was floated that UBS could buy Credit Suisse for $1BN, a proposal which the bank's shareholders balked at, Bloomberg reported that authorities are now considering a full or partial nationalization of Credit Suisse - an outcome which would wipe out the equity and bail-in bondholders - as the only other viable option outside a UBS Group AG takeover. And yes, 0.25 is still more than 0.0. According to BBG, "the country is considering either taking over the bank in full or holding a significant equity stake if a takeover by UBS Group AG falls apart because of the complexities in arranging the deal and the short time frame involved." Needless to say, the situation remains "very fluid" and is changing by the hour as authorities seek to finalize a solution for the bank by the time Asian markets open, which is late evening in Europe, the people said. *   *   * Earlier With just hours left until futures reopen for trading in what could be a very turbulent session, UBS has offered to buy Credit Suisse for up to $1BN the FT first reported, with Swiss authorities planning to change the country’s laws to bypass a shareholder vote on the transaction as they rush to finalize the deal engineered to restore trust in the banking system. Photo: Getty Images The take-under offer was communicated on Sunday morning with a price of CHF0.25 a share to be paid in UBS stock, far below Credit Suisse’s closing price of CHF1.86 on Friday. And while the current terms value Credit Suisse’s equity at a paltry $1BN, the figure does not reflect additional provisions of around $6 billion from the Swiss National Bank to ensure the deal is done. In other words, UBS gets an explicit $6BN central bank backstop (which would mean the central bank is in for a penny, in for a trillion), pays $1BN and gets a megabank whose Zurich headquarters alone is probably worth more. One can see why JPMorgan, pardon UBS would love the deal... and why Credit Suisse would be less than enthused. The all-share deal between the two biggest Swiss banks is set to be signed as soon as Sunday evening and will be priced at a fraction of Credit Suisse’s closing price on Friday, all but wiping out the target’s shareholders, FT sources said. They also noted that in an unexpected twist, there will be a very unique material adverse exit clause: if UBS credit default spreads jump by 100 basis points or more, the deal is off! In other words, if the market balks at the pro forma deal and believes more contagion is coming, UBS wants none of it, and the Swiss government and SNB can deal with the fallout. Needless to say, Credit Suisse shareholders - led by the Saudi National Commercial Bank, a full list of the top 40 is shown below - were less then enthused by the prospect of losing everything ... ... and Bloomberg notes that Credit Suisse is pushing back on the proposed deal with backing from its biggest shareholder: "Credit Suisse believes the offer is too low and would hurt shareholders and employees who have deferred stock." The FT echoes the skepticism, and says that the situation is fast-moving and there is no guarantee that terms will remain the same or that a deal will be reached: "Some of the people said that the current terms were unfair for Credit Suisse and its shareholders. Others criticised the plans to void normal corporate governance rules by preventing a UBS shareholder vote." The reason why in this late hours there seems to be little convergence toward a consensus is because there has been limited contact between the two banks and the terms have been heavily influenced by the Swiss National Bank and regulator Finma, the FT sources said. Meanwhile, the Federal Reserve has given its assent to the deal progressing. Both sides have been locked in discussions with regulators since Wednesday, when Credit Suisse asked the SNB to provide it with an emergency SFr50bn ($54bn) credit line. When this backstop failed to halt the collapse in depositor confidence and stock price - as we said it would - the central bank stepped in to force a merger after becoming concerned about the viability of the country’s second-largest lender. Yesterday, we learned that deposit outflows from Credit Suisse topped SFr10bn a day late last week, after a record bank run pulled CHF111BN from the group in the final three months of last year. According to the FT, on Saturday night, the Swiss cabinet assembled in the finance ministry in Bern for a series of presentations from government officials, the SNB, market regulator Finma, and representatives of the banking sector. UBS will dramatically shrink Credit Suisse’s investment bank, with Reuters reporting that some 10,000 workers will be let go, and the combined entity will make up no more than a third of the merged group, two of the people said. However, the current term sheet for the deal does not specify what will happen to Credit Suisse’s individual business divisions, and simply outlines a 100% takeover of the group. The government is preparing emergency measures to fast-track the takeover and plans to introduce legislation that will bypass the normal six-week consultation period required for UBS shareholders so the deal can be sealed immediately. The framework of the deal has been designed by Swiss regulators to provide maximum stability to the country’s banking system, people briefed about the matter said. However, if Credit Suisse balks at the takeunder - as it perhaps should and takes its chances in bankruptcy court where its equity may be valued higher than the paltry 0.25 - the Swiss National Bank, and all other central banks, will have no choice but to step with a shotgun bailout of the entire financial system for the second time in 15 years. Tyler Durden Mon, 03/20/2023 - 04:11.....»»

UBS To Buy CS For $3 Billion As Bank's $17BN In AT1 Bonds Get Wiped Out In Record "Bail-In"; SNB Offers $100 Billion Liquidity Backstop Update (1500ET): We finally have a deal, and what was at first a CHF1 BN acquisition priceof Credit Suisse by UBS, which then rose to CHF 2 BN, has now cranked up one final time to CHF 3BN (US$3.25 billion), or 0.76 per share, specifically shareholders of Credit Suisse will receive 1 share in UBS for 22.48 shares in Credit Suisse. As part of the deal, the Swiss National Bank is offering a 100 billion-franc liquidity assistance to UBS while the government is granting a 9 billion-franc guarantee for potential losses from assets UBS is taking over, i.e., this is a taxpayer-backed bailout. More importantly, however, the bank's entire AT1 tranche - some CHF16BN of Contingent Convertible bonds - will be bailed in and written down to zero, to wit: "FINMA has determined that Credit Suisse’s Additional Tier 1 Capital (deriving from the issuance of Tier 1 Capital Notes) in the aggregate nominal amount of approximately CHF 16 billion will be written off to zero." This wipe out, pardon, bail-in is the biggest loss yet for Europe’s $275 billion AT1 market, far eclipsing the approximately €1.35 billion loss suffered by junior bondholders of Spanish lender Banco Popular SA back in 2017, when it was absorbed by Banco Santander SA to avoid a collapse. AT1 bonds were introduced in Europe after the global financial crisis to serve as shock absorbers when banks start to fail. They are designed to impose permanent losses on bondholders or be converted into equity if a bank’s capital ratios fall below a predetermined level, effectively propping up its balance sheet and allowing it to stay in business. As Bloomberg notes, investors had been concerned that a so-called bail-in would result in the AT1s being written down, while senior debt issued by the holding company, Credit Suisse would be converted into equity for the bank. In retrospect, they were right to be worried... meanwhile equityholders get CHF3 billion; we are confident Swiss pensions will be delighted they are getting a doughnut while the Saudis get a not immaterial recovery. PIMCO, Invesco and BlueBay Funds Management SA were among the many asset managers holding Credit Suisse AT1 notes. Pimco and BlueBay declined to comment when contacted by Bloomberg News on Friday, before the deal was announced. A spokeswoman for Invesco said that “due to portfolio disclosure policies, we wouldn’t disclose any current movements in portfolios but our investment teams are continuing to monitor developments and prudently managing our clients’ assets in light of current market conditions.” The bonds were by Friday already trading at levels usually reserved for companies about to go bust. A slice of the bank’s $1.65 billion note, issued less than a year ago, changed hands at about 35 cents on the dollar, according to trade reporting system Trace. And while it may be counterintuitive, according to the Swiss bail-in regime, AT1 debt is above equity in the loss absorption waterfall. Source: Credit Suisse According to Bloomberg, pricing fluctuated on Sunday as traders weighed two contrasting scenarios: either the regulator would nationalize part or the whole bank, possibly writing off Credit Suisse’s AT1 bonds entirely, or a UBS buyout with potentially no losses for bondholders. Well, as of this moment, those bonds have been Lehmaned, or rather Lehmanned in honor of the CS Chairman. Here is the full press release from Credit Suisse with final terms of the deal: Credit Suisse and UBS have entered into a merger agreement on Sunday following the intervention of the Swiss Federal Department of Finance, the Swiss National Bank and the Swiss Financial Market Supervisory Authority FINMA (FINMA). UBS will be the surviving entity upon closing of the merger transaction. Under the terms of the merger agreement all shareholders of Credit Suisse will receive 1 share in UBS for 22.48 shares in Credit Suisse. Until consummation of the merger, Credit Suisse will continue to conduct its business in the ordinary course and implement its restructuring measures in collaboration with UBS. The Swiss National Bank will grant Credit Suisse access to facilities that provide substantial additional liquidity. On March 19, 2023, Swiss Federal Department of Finance, the Swiss National Bank and FINMA have asked Credit Suisse and UBS to enter into the merger agreement. Pursuant to the emergency ordinance which is being issued by the Swiss Federal Council, the merger can be implemented without approval of the shareholders. The consummation of the merger remains subject to customary closing conditions. Credit Suisse and UBS have entered into a merger agreement on Sunday with UBS being the surviving entity. After negotiations that took place during the weekend leading up to the signing of the merger agreement, UBS and Credit Suisse concluded that it would be in the best interest of their shareholders and their stakeholders to enter into the merger. This move comes after the Swiss Federal Department of Finance, the Swiss National Bank and FINMA asked both companies to conclude the transaction to restore necessary confidence in the stability of the Swiss economy and banking system. The merger transaction provides for the following key terms: All shareholders of Credit Suisse will receive 1 share in UBS for 22.48 shares in Credit Suisse as merger consideration. This exchange ratio reflects a merger consideration of CHF 3 billion for all shares in Credit Suisse. The merger transaction remains subject to customary closing conditions. Both parties are confident that all conditions can be met. The merger is expected to be consummated by end of 2023 if possible. The Swiss National Bank will grant Credit Suisse access to facilities that provide substantial additional liquidity. For the purpose of a seamless integration of Credit Suisse into UBS, UBS is expected to appoint key personnel to Credit Suisse as soon as legally possible. Credit Suisse continues to operate in the ordinary course of business and implement its restructuring measures in collaboration with UBS. UBS has expressed its confidence that the employment of the staff of Credit Suisse will be continued. On Sunday, Credit Suisse has been informed by FINMA that FINMA has determined that Credit Suisse’s Additional Tier 1 Capital (deriving from the issuance of Tier 1 Capital Notes) in the aggregate nominal amount of approximately CHF 16 billion will be written off to zero. In consideration of the unique circumstances affecting the Swiss economy as a whole, the Swiss Federal Council is issuing an emergency ordinance (Notverordnung) tailored to this particular transaction. Most importantly, the merger will be implemented without the otherwise necessary approval of the shareholders of UBS and Credit Suisse to enhance deal certainty. Axel P. Lehmann, Chairman of the Board of Directors of Credit Suisse said: “Given recent extraordinary and unprecedented circumstances, the announced merger represents the best available outcome. This has been an extremely challenging time for Credit Suisse and while the team has worked tirelessly to address many significant legacy issues and execute on its new strategy, we are forced to reach a solution today that provides a durable outcome.” And here is the press release from UBS's side, which repeat all of the above and informs us that "the combination of the two businesses is expected to generate annual run-rate of cost reductions of more than USD 8 billion by 2027." Translation: virtually all CS workers will be laid off.  UBS to Acquire Credit Suisse Creates leading global wealth manager with USD 5 trillion of invested assets across the Group Extends UBS lead in Swiss home market UBS strategy unchanged, including focus on growth in Americas and APAC Attractive financial terms which include downside protection Annual run-rate of cost reduction of more than USD 8 billion expected by 2027 UBS remains strongly capitalized well above our target of 13% and committed to progressive cash dividend policy A focused Investment Bank, remaining committed to UBS’s model; strategic Global Banking businesses to be retained, majority of Credit Suisse markets positions moved to non-core UBS plans to acquire Credit Suisse. The combination is expected to create a business with more than USD 5 trillion in total invested assets and sustainable value opportunities. It will further strengthen UBS’s position as the leading Swiss-based global wealth manager with more than USD 3.4 trillion in invested assets on a combined basis, operating in the most attractive growth markets. The transaction reinforces UBS’s position as the leading universal bank in Switzerland. The combined businesses will be a leading asset manager in Europe, with invested assets of more than USD 1.5 trillion. UBS Chairman Colm Kelleher said: “This acquisition is attractive for UBS shareholders but, let us be clear, as far as Credit Suisse is concerned, this is an emergency rescue. We have structured a transaction which will preserve the value left in the business while limiting our downside exposure. Acquiring Credit Suisse’s capabilities in wealth, asset management and Swiss universal banking will augment UBS’s strategy of growing its capital-light businesses. The transaction will bring benefits to clients and create long-term sustainable value for our investors.” UBS Chief Executive Officer Ralph Hamers said: “Bringing UBS and Credit Suisse together will build on UBS’s strengths and further enhance our ability to serve our clients globally and deepen our best-in-class capabilities. The combination supports our growth ambitions in the Americas and Asia while adding scale to our business in Europe, and we look forward to welcoming our new clients and colleagues across the world in the coming weeks.” The discussions were initiated jointly by the Swiss Federal Department of Finance, FINMA and the Swiss National Bank and the acquisition has their full support. Under the terms of the all-share transaction, Credit Suisse shareholders will receive 1 UBS share for every 22.48 Credit Suisse shares held, equivalent to CHF 0.76/share for a total consideration of CHF 3 billion. UBS benefits from CHF 25 billion of downside protection from the transaction to support marks, purchase price adjustments and restructuring costs, and additional 50% downside protection on non-core assets. Both banks have unrestricted access to the Swiss National Bank existing facilities, through which they can obtain liquidity from the SNB in accordance with the guidelines on monetary policy instruments. The combination of the two businesses is expected to generate annual run-rate of cost reductions of more than USD 8 billion by 2027. UBS Investment Bank will reinforce its global competitive position with institutional, corporate and wealth management clients through the acceleration of strategic goals in Global Banking while managing down the rest of Credit Suisse’s Investment Bank. The combined investment banking businesses accounts for approximately 25% of Group risk weighted assets. UBS anticipates that the transaction is EPS accretive by 2027 and the bank remains capitalized well above its target of 13%. Colm Kelleher will be Chairman and Ralph Hamers will be Group CEO of the combined entity. The transaction is not subject to shareholder approval. UBS has obtained pre-agreement from FINMA, Swiss National Bank, Swiss Federal Department of Finance and other core regulators on the timely approval of the transaction. Finally, the clowns responsible for the global banking crisis have decided it's their turn to chime in. * * * Update (1430ET): The Swiss government, SNB and various regulators hold an ad hoc press conference on the Credit Suisse takeover by UBS. During the press conference, the Swiss president says the surge in deposit outflows on Friday showed that stabilization of Credit Suisse was necessary, i.e., the bank would have collapsed absent a takeover by a larger bank. And here are some more highlights from the presser: *KELLER-SUTTER: SOLUTION WILL STABILIZE CS, FINANCIAL MARKETS *KELLER-SUTTER: TOP PRIORITY WAS INTERESTS OF SWITZERLAND *KELLER-SUTTER: GUARANTEE ONLY KICKS IN ON CERTAIN THRESHOLD *CREDIT SUISSE TAKEOVER TO TRIGGER CHF16B WRITEDOWN ON AT1S *JORDAN: BANKRUPTCY OF CS WOULD HAVE HAD SEVERE CONSEQUENCES *JORDAN: CS BANKRUPTCY TO HAVE SEVERELY DAMAGED SWISS REPUTATION *JORDAN: US BANKING CRISIS AGGRAVATED CREDIT SUISSE CRISIS *JORDAN: SNB TO PROVIDE LIQUIDITY IF NEEDED Here is the full SNB statement: Swiss National Bank provides substantial liquidity assistance to support UBS takeover of Credit Suisse UBS today announced the takeover of Credit Suisse. This takeover was made possible with the support of the Swiss federal government, the Swiss Financial Market Supervisory Authority FINMA and the Swiss National Bank. With the takeover of Credit Suisse by UBS, a solution has been found to secure financial stability and protect the Swiss economy in this exceptional situation. Both banks have unrestricted access to the SNB’s existing facilities, through which they can obtain liquidity from the SNB in accordance with the ‘Guidelines on monetary policy instruments’. In addition, and based on the Federal Council’s Emergency Ordinance, Credit Suisse and UBS can obtain a liquidity assistance loan with privileged creditor status in bankruptcy for a total amount of up to CHF 100 billion. Furthermore, and based on the Federal Council’s Emergency Ordinance, the SNB can grant Credit Suisse a liquidity assistance loan of up to CHF 100 billion backed by a federal default guarantee. The structure of the loan is based on the Public Liquidity Backstop (PLB), the key parameters of which were already decided by the Federal Council in 2022. The substantial provision of liquidity will ensure that both banks have access to the necessary liquidity. By providing substantial liquidity assistance, the SNB is fulfilling its mandate to contribute to the stability of the financial system, and it continues to work closely with the federal government and FINMA to this end. * * * Update (1415ET): As attention turns to the bailoutee, it appears that the market is not convinced that not even the SNB's $100BN liquidity backstop will be sufficient as UBS Credit Default Swaps are starting to move in the wrong direction, and during Sunday's emergency trading session, BBG reports that UBS CDS have widened by at least 40bps (so far) to 215 bps for five-year contracts. Should this move accelerate, the deal MAC may still be triggered and the deal could fall apart. * * * Update (1300ET): The Financial Times reports that UBS has agreed to buy Credit Suisse after increasing its offer to more than $2bn, with Swiss authorities poised to change the country’s laws to bypass a shareholder vote on the transaction as they rush to finalize a deal before Monday. The purchase price is a fraction of the $8 billion market cap the company was valued at on Friday's close; it means that UBS will now pay slightly more than CHF0.50 a share in its own stock, up from a bid of SFr0.25 earlier today, but far below Credit Suisse’s closing price of CHF1.86 on Friday. We also learn that UBS agreed to a softening of a material adverse change clause that would void the deal if its credit default spreads jump; it wasn't immediately clear if that entire clause was scrapped or if the CDS trigger was merely pulled wider. UBS shareholders - who will not be consulted on the deal which will circumvent normal corporate governance rules by preventing a UBS shareholder vote - are angry. As FT notes, Vincent Kaufmann, chief executive of Ethos Foundation, which represents Swiss pension funds that own between 3% and 5% of Credit Suisse and UBS, told the Financial Times that the move to bypass a shareholder vote on the deal was poor corporate governance. “I can’t believe our members and UBS shareholders will be happy about this,” he said. “I have never seen such measures taken; it shows how bad the situation is.”  As a reminder, here is a list of the 40 biggest investors. Finally, The Wall Street Journal reports that, in an effort to smooth the deal, the Swiss National Bank has offered UBS a whopping $100 billion in liquidity to help it take on Credit Suisse’s operations, In other words, the Swiss government has extended a liquidity line equal to ~$11.5MM on a per capita basis: said otherwise, every family of 4 is backstopping almost $50MM in UBS assets. Using UBS to save Credit Suisse marks a turnaround from nearly 15 years ago, when Switzerland bailed out UBS after it got stuck with billions of toxic assets in its U.S. business. Credit Suisse declined state aid at the time and emerged from the crisis in stronger shape.  *  *  * Update (10:30am ET):  So much for Credit Suisse thinking it has leverage by balking at the proposed CHF0.25 offer from UBS. Just hours after it was floated that UBS could buy Credit Suisse for $1BN, a proposal which the bank's shareholders balked at, Bloomberg reported that authorities are now considering a full or partial nationalization of Credit Suisse - an outcome which would wipe out the equity and bail-in bondholders - as the only other viable option outside a UBS Group AG takeover. And yes, 0.25 is still more than 0.0. According to BBG, "the country is considering either taking over the bank in full or holding a significant equity stake if a takeover by UBS Group AG falls apart because of the complexities in arranging the deal and the short time frame involved." Needless to say, the situation remains "very fluid" and is changing by the hour as authorities seek to finalize a solution for the bank by the time Asian markets open, which is late evening in Europe, the people said. *   *   * Earlier With just hours left until futures reopen for trading in what could be a very turbulent session, UBS has offered to buy Credit Suisse for up to $1BN the FT first reported, with Swiss authorities planning to change the country’s laws to bypass a shareholder vote on the transaction as they rush to finalize the deal engineered to restore trust in the banking system. Photo: Getty Images The take-under offer was communicated on Sunday morning with a price of CHF0.25 a share to be paid in UBS stock, far below Credit Suisse’s closing price of CHF1.86 on Friday. And while the current terms value Credit Suisse’s equity at a paltry $1BN, the figure does not reflect additional provisions of around $6 billion from the Swiss National Bank to ensure the deal is done. In other words, UBS gets an explicit $6BN central bank backstop (which would mean the central bank is in for a penny, in for a trillion), pays $1BN and gets a megabank whose Zurich headquarters alone is probably worth more. One can see why JPMorgan, pardon UBS would love the deal... and why Credit Suisse would be less than enthused. The all-share deal between the two biggest Swiss banks is set to be signed as soon as Sunday evening and will be priced at a fraction of Credit Suisse’s closing price on Friday, all but wiping out the target’s shareholders, FT sources said. They also noted that in an unexpected twist, there will be a very unique material adverse exit clause: if UBS credit default spreads jump by 100 basis points or more, the deal is off! In other words, if the market balks at the pro forma deal and believes more contagion is coming, UBS wants none of it, and the Swiss government and SNB can deal with the fallout. Needless to say, Credit Suisse shareholders - led by the Saudi National Commercial Bank, a full list of the top 40 is shown below - were less then enthused by the prospect of losing everything ... ... and Bloomberg notes that Credit Suisse is pushing back on the proposed deal with backing from its biggest shareholder: "Credit Suisse believes the offer is too low and would hurt shareholders and employees who have deferred stock." The FT echoes the skepticism, and says that the situation is fast-moving and there is no guarantee that terms will remain the same or that a deal will be reached: "Some of the people said that the current terms were unfair for Credit Suisse and its shareholders. Others criticised the plans to void normal corporate governance rules by preventing a UBS shareholder vote." The reason why in this late hours there seems to be little convergence toward a consensus is because there has been limited contact between the two banks and the terms have been heavily influenced by the Swiss National Bank and regulator Finma, the FT sources said. Meanwhile, the Federal Reserve has given its assent to the deal progressing. Both sides have been locked in discussions with regulators since Wednesday, when Credit Suisse asked the SNB to provide it with an emergency SFr50bn ($54bn) credit line. When this backstop failed to halt the collapse in depositor confidence and stock price - as we said it would - the central bank stepped in to force a merger after becoming concerned about the viability of the country’s second-largest lender. Yesterday, we learned that deposit outflows from Credit Suisse topped SFr10bn a day late last week, after a record bank run pulled CHF111BN from the group in the final three months of last year. According to the FT, on Saturday night, the Swiss cabinet assembled in the finance ministry in Bern for a series of presentations from government officials, the SNB, market regulator Finma, and representatives of the banking sector. UBS will dramatically shrink Credit Suisse’s investment bank, with Reuters reporting that some 10,000 workers will be let go, and the combined entity will make up no more than a third of the merged group, two of the people said. However, the current term sheet for the deal does not specify what will happen to Credit Suisse’s individual business divisions, and simply outlines a 100% takeover of the group. The government is preparing emergency measures to fast-track the takeover and plans to introduce legislation that will bypass the normal six-week consultation period required for UBS shareholders so the deal can be sealed immediately. The framework of the deal has been designed by Swiss regulators to provide maximum stability to the country’s banking system, people briefed about the matter said. However, if Credit Suisse balks at the takeunder - as it perhaps should and takes its chances in bankruptcy court where its equity may be valued higher than the paltry 0.25 - the Swiss National Bank, and all other central banks, will have no choice but to step with a shotgun bailout of the entire financial system for the second time in 15 years. Tyler Durden Sun, 03/19/2023 - 13:11.....»»

The Swiss National Bank said in a statement Sunday afternoon that the takeover was made possible by the Swiss federal government and the Swiss Financial Market Supervisory Authority FINMA. UBS is said to be offering up to $1 billion for Credit Suisse.Getty Images UBS will take over Credit Suisse, the Swiss National Bank said Sunday. UBS had been in talks this weekend about buying some or all of its troubled Swiss rival. Swiss regulators are planning emergency changes to regulations so it can avoid a shareholder vote on the deal. UBS will take over Credit Suisse, the Swiss National Bank announced Sunday afternoon.The Swiss National Bank said in a statement Sunday afternoon that the takeover was made possible by support from the Swiss federal government and FINMA, which regulates Switzerland's finances."With the takeover of Credit Suisse by UBS, a solution has been found to secure financial stability and protect the Swiss economy in this exceptional situation," the statement said. The Swiss government issued an emergency ruling that the deal can avoid a shareholder vote to speed up the process, Credit Suisse said in the statement. Credit Suisse later said the deal would value the bank at Sfr3 billion, or around $3.25 billion. In a press conference to announce the deal, the Swiss president said that deposit outflows on Friday made it clear that a stabilization of Credit Suisse was required. As part of the deal, the Swiss government is giving UBS a guarantee of Sfr9 billion to assume potential losses arising from certain assets. "Given recent extraordinary and unprecedented circumstances, the announced merger represents the best available outcome," Axel P. Lehmann, chairman of Credit Suisse, said in a statement. "This has been an extremely challenging time for Credit Suisse and while the team has worked tirelessly to address many significant legacy issues and execute on its new strategy, we are forced to reach a solution today that provides a durable outcome."The all-share deal will almost entirely wipe out Credit Suisse investors, with the $2 billion price tag significantly less than Credit Suisse's market capitalization on Friday, and a fraction of what Credit Suisse had been valued at at the turn of the year.UBS Chairman Colm Kelleher described the deal as a "rescue.""This acquisition is attractive for UBS shareholders but, let us be clear, as far as Credit Suisse is concerned, this is an emergency rescue. We have structured a transaction which will preserve the value left in the business while limiting our downside exposure," he said in a statement.UBS Chief Executive Officer Ralph Hamers also acknowledged that the move "supports our growth ambitions in the Americas and Asia while adding scale to our business in Europe.""Bringing UBS and Credit Suisse together will build on UBS's strengths and further enhance our ability to serve our clients globally and deepen our best-in-class capabilities," Hamers said in a statement.The rescue deal comes a week after Silicon Valley Bank collapsed, which had a ripple effect through the banking sector and rattled investors who feared other banks could follow suit. Credit Suisse's two biggest shareholders are the Saudi National Bank and the Qatar Investment Authority, which have a combined stake of 17%.Shares in Credit Suisse dropped 24% on Wednesday after Saudi National Bank, which is its largest shareholder, warned it wouldn't be able to invest more cash in the bank because of regulatory hurdles.On Thursday, it secured a $50 billion lifeline from the Swiss National Bank and its shares jumped by a fifth, only to drop a further 8% on Friday. Read the original article on Business Insider.....»»

Switzerland's biggest bank is only prepared to offer a fraction of its troubled Swiss rival's market value, the Financial Times reported. UBS is said to be offering up to $1 billion for Credit Suisse.Getty Images UBS is offering to pay up to $2 billion to buy Credit Suisse, the Financial Times reported. UBS has been in talks this weekend about buying some or all of its troubled Swiss rival. Credit Suisse believed the offer was too low, Bloomberg reported.  UBS offered to pay up more than $2 billion to rescue its troubled Swiss rival Credit Suisse — after initially offering half that, the Financial Times reported Sunday. Swiss regulators are planning emergency changes to regulations so it can avoid a shareholder vote on the deal to speed up the process before markets open on Monday, per the report.The all-share deal is expected to be signed by Sunday night and would value Credit Suisse's equity at far less than Friday closing value of about $8 billion, according to unnamed sources who spoke to the FT.Bloomberg reported earlier Sunday that Credit Suisse thought UBS's initial offer of $1 billion was too low and would hurt both shareholders as well as employees with stock options, according to unnamed sources. A deal would mean investors' stakes in the bank are close to worthless. Its two biggest shareholders are the Saudi National Bank and the Qatar Investment Authority, which have a combined stake of 17%.Bloomberg also reported that a partial or full nationalization of Credit Suisse was being considered as the only other option to a takeover by UBS if a deal cannot be agreed by late Sunday night, when Asian markets open. The Swiss finance ministry declined to comment to the outlet.The amount of cost-cutting Swiss regulators would permit UBS to do through steps such as axing jobs will influence how much it can afford to pay, The Wall Street Journal reported. Credit Suisse was already eliminating about 9,000 roles from its workforce of just over 50,000.Options for UBS could include retaining Credit Suisse's lucrative wealth-management operations, retaining only certain parts of its investment bank, and spinning off its Swiss domestic operations, per the Journal. UBS is also negotiating backstops and guarantees from Swiss regulators and may want a clause that would void a deal if markets deem it to be too risky and send the cost of its default protection soaring. Mohammed El-Erian, chief economic advisor to Allianz, described the deal to BBC News as a "shotgun wedding" to stop a potential "death spiral" for Credit Suisse.UBS was considering whether to acquire part or all of Credit Suisse on Friday, the FT first reported. The Swiss National Bank and Swiss regulators brokered talks in a bid to restore confidence in the country's banks and regarded a merger as their "plan A," per the newspaper. The rescue deal comes a week after Silicon Valley Bank collapsed, which had a ripple effect through the banking sector and rattled investors who feared other banks could follow suit. Shares in Credit Suisse fell dropped 24% on Wednesday after its largest shareholder, Saudi National Bank, warned it wouldn't be able to invest more cash in the bank because of regulatory hurdles.On Thursday it secured a $50 billion lifeline from the Swiss National Bank and its shares jumped by a fifth, only to drop a further 8% on Friday. UBS, Credit Suisse and the SNB declined to comment to the FT and did not immediately respond to requests for comment from Insider.Read the original article on Business Insider.....»»

Swiss regulators regard a takeover deal as the only solution following the collapse in confidence in Credit Suisse this week, per the Financial Times. UBS is in talks about a merger with Credit Suisse.Arnd Wiegmann/Getty Images UBS is in talks to acquire part or all of Credit Suisse, the Financial Times reported.  The talks come after a harrowing week for Credit Suisse, whose shares sank to a record low.  The likely merger of Switzerland's two largest banks comes a week after SVB collapsed.   Two of Switzerland's largest banks and their regulators are thrashing out a merger deal that could be fast-tracked by Switzerland, the Financial Times reported.The Swiss National Bank and Swiss regulators brokered talks between UBS and its embattled smaller rival Credit Suisse as the only way of restoring confidence in the latter lender, the newspaper reported Friday.Later Saturday, the Times cited people familiar with the situation, reporting that the country is ready to use emergency measures to facilitate a takeover by UBS of Credit Suisse. Typically, UBS would have to allow shareholders weeks before such a deal was made, but with emergency measures, that waiting period could be skipped.Both UBS and Credit Suisse declined to comment to the FT and Bloomberg. Outflows from Credit Suisse hit almost $11 billion a day late this week as confidence dwindled, two unnamed sources told the FT. The boards of both banks were meeting this weekend, suggesting that a deal is imminent. But Bloomberg reported later on Saturday that according to sources, the investment banking and trading arms of the bank are sticking points for the two sides.UBS was asking the Swiss government to cover some legal costs or other losses if a deal was done, Bloomberg reported citing unnamed sources. They suggested that UBS could buy its rival's wealth and asset management divisions, and sell the investment banking division. Swiss regulators told their US and UK counterparts that a merger of UBS and Credit Suisse was their "plan A," per the FT. UBS posted a $7.6 billion profit last year and is in far better financial health than its smaller rival, which made a loss of $7.9 billion.Deutsche Bank is also mulling whether parts of Credit Suisse might appeal and their potential value in the event of a breakup, Bloomberg reported. A representative for the bank declined to comment to the outlet.The FT also reported that BlackRock had explored making an offer for Credit Suisse, but a representative told Insider that it had "no interest" in acquiring part or all of the Swiss bank. Talks about a UBS-Credit Suisse tie-up come just a week after the collapse of Silicon Valley Bank sent shockwaves throughout the banking sector as investors and deposit-holders feared other banks could be next. Credit Suisse was hit particularly hard by investors' concerns since it's faced a slew of other challenges recently, including an announcement last week that it would delay its 2022 annual report after an inquiry from the SEC. To make matters worse, this week, the Zurich-based bank's largest shareholder, Saudi National Bank, warned it would not be able to invest more cash into the bank without facing regulatory hurdles. On Thursday, after shares of Credit Suisse hit a record low, the troubled bank said it had secured a $50 billion lifeline from the Swiss central bank.However, shares fell a further 8% in Zurich Friday, valuing the bank at about $8.8 billion.Read the original article on Business Insider.....»»

Swiss regulators regard a takeover deal as the only solution following the collapse in confidence in Credit Suisse this week, per the Financial Times. UBS is in talks about a merger with Credit Suisse.Arnd Wiegmann/Getty Images UBS is in talks to acquire part or all of Credit Suisse, the Financial Times reported.  The talks come after a harrowing week for Credit Suisse, whose shares sank to a record low.  The likely merger of Switzerland's two largest banks comes a week after SVB collapsed.   Two of Switzerland's largest banks and their regulators are thrashing out a merger deal that could be announced later on Saturday, the Financial Times reported.The Swiss National Bank and Swiss regulators brokered talks between UBS and its embattled smaller rival Credit Suisse as the only way of restoring confidence in the latter lender, the newspaper reported Friday.Outflows from Credit Suisse hit almost $11 billion a day late this week as confidence dwindled, two unnamed sources told the FT. The boards of both banks were meeting this weekend, suggesting that a deal is imminent. Bloomberg reported Saturday that UBS was asking the Swiss government to cover some legal costs or other losses if a deal was done, citing unnamed sources. They suggested that UBS could buy its rival's wealth and asset management divisions, and sell the investment banking division. Both UBS and Credit Suisse declined to comment to the FT and Bloomberg. Swiss regulators told their US and UK counterparts that a merger of UBS and Credit Suisse was their "plan A," per the FT. UBS posted a $7.6 billion profit last year and is in far better financial health than its smaller rival, which made a loss of $7.9 billion.Deutsche Bank is also mulling whether parts of Credit Suisse might appeal and their potential value in the event of a breakup, Bloomberg reported. A representative for the bank declined to comment to the outlet.The FT also reported that BlackRock had explored making an offer for Credit Suisse, but a representative told Insider that it had "no interest" in acquiring part or all of the Swiss bank. Talks about a UBS-Credit Suisse tie-up come just a week after the collapse of Silicon Valley Bank sent shockwaves throughout the banking sector as investors and deposit-holders feared other banks could be next. Credit Suisse was hit particularly hard by investors' concerns since it's faced a slew of other challenges recently, including an announcement last week that it would delay its 2022 annual report after an inquiry from the SEC. To make matters worse, this week, the Zurich-based bank's largest shareholder, Saudi National Bank, warned it would not be able to invest more cash into the bank without facing regulatory hurdles. On Thursday, after shares of Credit Suisse hit a record low, the troubled bank said it had secured a $50 billion lifeline from the Swiss central bank.However, shares fell a further 8% in Zurich Friday, valuing the bank at about $8.8 billion.Read the original article on Business Insider.....»»

The Swiss banking giant has weathered a slew of scandals in recent years, and investors are jittery after the collapse of three US banks. Credit Suisse's stock is plunging as investors fear a banking crisis.AP Photo/Schalk van Zuydam UBS is in talks to acquire Credit Suisse as regulators rush to restore confidence. Credit Suisse has long been a troubled bank, posting billions in losses and deposit outflows.  Here's a closer look at why regulators are so worried about Credit Suisse. UBS is eyeing a takeover of Credit Suisse, after shares tumbled to a record low this week and fears mounted over the strength of the global banking system.The prospective deal between Switzerland's two biggest banks was brokered by the Swiss National Bank and regulators in an effort to shore up confidence for the country's financial institutions, the Financial Times reported on Friday.According to the outlet, Swiss regulators said a merger between the two banks is their "plan A" leading into markets opening Monday, though it remains uncertain if the deal will go through.Deutsche Bank is also reportedly considering acquiring parts of Credit Suisse, sources close to the matter told Bloomberg on Saturday. Presented below is a closer look at the European lender's troubles, and why it's fending off questions about its stability and it looks to reach a deal before markets open Monday. Why is Credit Suisse under fire right now?Credit Suisse shares tanked Wednesday after its biggest shareholder, Saudi National Bank, warned it wouldn't be able to invest more cash without raising its stake above the regulatory limit of 10%.SNB's chair, Ammar al-Khudairy, told Reuters that he doesn't see the Saudi bank's stated lack of support as a problem."I don't think they will need extra money; if you look at their ratios, they're fine," he said, referring to standard measures of a bank's financial health."We are happy with the plan, the transformation plan that they have put forward. It is a very strong bank," he added, noting Credit Suisse operates under a strong regulatory regime in Switzerland and other countries.But investors have been showing signs of losing faith in Credit Suisse long before the Saudi comments, and before the SVB collapse rattled the entire banking industry.Harris Associates, Credit Suisse's No. 1 investor as recently as last year, exited its entire stake in the embattled Swiss bank over the past few months. The Chicago-based investment management firm owned about 10% of the Swiss bank's stock as of August last year, but slashed its exposure to 5% in January. More recently, Harris reportedly cut its holdings in the lender to zero."There is a question about the future of the franchise. There have been large outflows from wealth management," David Herro, Harris Associates' deputy chairman and chief investment officer, was cited by the Financial Times as saying, in a March 5 report.And Credit Suisse has faced a slew of other recent challenges. The bank revealed in its latest annual report that it found "material weaknesses" in its internal control over its financial reporting. Moreover, it delayed publishing that annual report after the Securities and Exchange Commission inquired about the lender's revisions to cash flow statements dating back to 2019.Credit Suisse also suffered a net loss of about $8 billion last year, as its net revenues tanked by more than a third.Moreover, it has seen a sharp increase in outflows over the past few months, driving it to tap its "liquidity buffers" — liquid assets such as central-bank reserves and high-quality government debt.Here's a quick summary of the controversies that have plagued Credit Suisse in recent years:The bank hired private detectives to spy on former executives, leading to the departure of its CEO in February 2020.It lost nearly $6 billion in March 2021 after Archeges Capital Management imploded and defaulted on its loans from the Swiss lender.It's still working to recover about $2 billion of the roughly $10 billion it had tied up in supply chain finance funds linked to Greensill, which collapsed amid allegations of fraud in March 2021.It was fined for making fraudulent loans dubbed "tuna bonds" to Mozambique's government between 2012 and 2016.Its chairman was forced to resign in January after an internal investigation found he violated COVID-19 quarantine rules to attend Wimbledon.Credit Suisse's previous CEO resigned for personal and health reasons last July.Is a banking crisis brewing?The race to put together a deal to acquire Credit Suisse follow recent events in the US banking industry.Silvergate, a key lender to the cryptocurrency industry, announced it was winding down its operations and liquidating its assets last Wednesday.Silicon Valley Bank, a major player in the venture-capital ecosystem, was overwhelmed by a wave of withdrawals and taken over by the Federal Deposit Insurance Corporation (FDIC) on Friday. The FDIC revealed on Sunday it had taken control of Signature Bank as well. Moreover, it announced that under a "systemic risk exception," it would fully guarantee both banks' deposits, beyond the usual limit of $250,000 per account.And First Republic Bank has also been trying to stave off concerns about its financial position, with 11 banks depositing $30 billion in the bank to help shore up its liquidity. Still, the New York Times reported on Friday that First Republic was looking to raise fresh capital. SVB ran into trouble because it invested some of its clients' deposits in long-dated bonds. Those plunged in price as the Federal Reserve hiked interest rates from nearly zero to upwards of 4.5% over the past 12 months in response to inflation hitting 40-year highs.The lender sold its bond portfolio at a nearly $2 billion loss last week, and launched a capital raise to reinforce its finances. Its scramble for cash stoked concerns about SVB's stability among VCs and their portfolio companies, sparking a wave of withdrawals that overwhelmed the bank and spurred the FDIC to intervene. SVB's collapse fueled worries that other banks are carrying heavy losses on their bond portfolios, as rates have jumped in both the US and Europe.It also put a focus on bank liquidity, with consumers and companies shifting their deposits from weaker banks to the strongest and largest institutions. Read the original article on Business Insider.....»»

First Republic Bank is sitting on billions of dollars of unrealized losses in its bond portfolio, similar to what brought down Silicon Valley Bank. Timothy A. Clary/AFP via Getty ImagesFirst Republic Bank plunged 30%, and then soared 28% on Thursday following a report that it was considering a sale.The bank has been roiled by the collapse of its regional banking peer, Silicon Valley Bank.Almost 70% of First Republic's deposits have no FDIC insurance and the bank has $4 billion in unrealized bond losses.It's been a rollercoaster type of day for First Republic Bank, which plunged as much as 36% in early morning trades on reports that the beleaguered bank was exploring strategic alternatives that could ultimately include a sale to a larger bank.But those losses turned into gains throughout the rest of the day, with the stock soaring as much as 28% on reports that a potential deal was inching closer to fruition. The regional bank stock rallied 102% from its intra-day low to its intra-day peak on Thursday, highlighting the volatility seen in bank stocks recently. The volatility in regional banks is not over, one week after the fallout from Silicon Valley Bank's implosion, with shares of First Republic Bank plunging 30% on Thursday as the company reportedly considers a sale.A report from the Wall Street Journal said that both Morgan Stanley and JPMorgan were in talks to bolster the bank with a "sizable" capital infusion, while a full takeover remains a possibility. Follow-up reports suggest that those two banks, along with Bank of America, Citigroup, US Bancorp, Truist Financial, and PNC Financial Services could infuse $30 billion into the company.First Republic Bank has some similarities to Silicon Valley Bank, including the fact that nearly 70% of First Republic Bank's deposit base doesn't have FDIC insurance. That makes the bank more susceptible to a run on its deposits, even when considering the Fed's emergency liquidity measures.First Republic Bank is also sitting on $4 billion in unrealized losses on its held-to-maturity bond portfolio, which is what sparked the initial downfall for Silicon Valley Bank last week.Additionally, the bank is at heightened risk to see significant deposit outflows as customers shift their money to larger banks like Bank of America and JPMorgan. S&P Global Ratings and Fitch Ratings downgraded the company's credit status to "junk" on Wednesday, citing the risk of potential deposit outflows.While emergency measures over the weekend from the Federal Reserve and US Treasury, as well as a lending agreement with JPMorgan, helped shore up liquidity for First Republic, it might not be enough as confidence in the bank falters.Bloomberg was first to report on Wednesday that the bank was exploring strategic options to shore up liquidity, which that could include a sale to larger rivals.To be sure, First Republic has plenty of liquidity, with the company saying over the weekend that it had more than $70 billion in unused liquidity thanks to the agreements with the Fed and JPMorgan. "The additional borrowing capacity from the Federal Reserve, continued access to funding through the Federal Home Loan Bank, and ability to access additional financing through JPMorgan Chase & Co. increases, diversifies, and further strengthens First Republic's existing liquidity profile," the bank said on Sunday.Read the original article on Business Insider.....»»

First Republic Bank is sitting on billions of dollars of unrealized losses in its bond portfolio, similar to what brought down Silicon Valley Bank. Timothy A. Clary/AFP via Getty ImagesFirst Republic Bank plunged 30% on Thursday following a report that it was considering a sale.The bank has been roiled by the collapse of its regional banking peer, Silicon Valley Bank.Almost 70% of First Republic's deposits have no FDIC insurance and the bank has $4 billion in unrealized bond losses.The volatility in regional banks is not over, one week after the fallout from Silicon Valley Bank's implosion, with shares of First Republic Bank plunging 30% on Thursday as the company reportedly considers a sale.The stock pared its losses to about 23% following a report from the Wall Street Journal that both Morgan Stanley and JPMorgan were in talks to bolster the bank with a "sizable" capital infusion, while a full takeover remains a possibility.First Republic Bank has many similarities to Silicon Valley Bank, including the fact that nearly 70% of First Republic Bank's deposit base doesn't have FDIC insurance. That makes the bank more susceptible to a run on its deposits, even when considering the Fed's emergency liquidity measures.First Republic Bank is also sitting on $4 billion in unrealized losses on its held-to-maturity bond portfolio, which is what sparked the initial downfall for Silicon Valley Bank last week.Additionally, the bank is at heightened risk to see significant deposit outflows as customers shift their money to larger banks like Bank of America and JPMorgan. S&P Global Ratings and Fitch Ratings downgraded the company's credit status to "junk" on Wednesday, citing the risk of potential deposit outflows.While emergency measures over the weekend from the Federal Reserve and US Treasury, as well as a lending agreement with JPMorgan, helped shore up liquidity for First Republic, it might not be enough as confidence in the bank falters.Bloomberg report was first to report on Wednesday that the bank was exploring strategic options to shore up liquidity, which that could include a sale to larger rivals.To be sure, First Republic has plenty of liquidity, with the company saying over the weekend that it had more than $70 billion in unused liquidity thanks to the agreements with the Fed and JPMorgan. "The additional borrowing capacity from the Federal Reserve, continued access to funding through the Federal Home Loan Bank, and ability to access additional financing through JPMorgan Chase & Co. increases, diversifies, and further strengthens First Republic's existing liquidity profile," the bank said on Sunday.Read the original article on Business Insider.....»»

If It Looks Like A Bailout And Walks Like A Bailout It's Probably A Bailout Authored by Michael Maharrey via SchiffGold.com, As the old saying goes, if it looks like a duck, walks like a duck, and quacks like a duck, it’s probably a duck. Well, if it looks like a bailout, walks like a bailout, and talks like a bailout, it’s probably a bailout. In the aftermath of the Silicon Valley Bank and Signature Bank failures, nobody in the Biden administration or at the Federal Reserve wants to call the actions they took a “bailout.” But make no mistake — it was without a question a bailout. As Peter Schiff pointed out in a podcast, “Nobody wants to admit it’s a bailout because, obviously, the bailouts were not popular, and so they want to distance themselves from that language. But this absolutely is a bailout.” What exactly is a bailout? Investopedia defines it this way: A bailout is when a business, an individual, or a government provides money and/or resources (also known as a capital injection) to a failing company. These actions help to prevent the consequences of that business’s potential downfall which may include bankruptcy and default on its financial obligations.” Of course, individuals can be bailed out as well as companies. Bailing Out Depositors The FDIC insures bank deposits of over $250,000. But there were a lot of accounts in both SVB and Signature Banks above that threshold. Under the Treasury Department plan, bank customers won’t lose one dime – and that includes their uninsured deposits over $250,000 On the Sunday after government regulators took over the two institutions, the FDIC created “bridge banks” to handle both insured and uninsured customer deposits. Banking regulators assured depositors that they would have full access to all of their funds. Since the FDIC will be covering deposits that weren’t originally covered, how can you call it anything other than a bailout?  The government rode in on a white horse and saved wealthy depositors who stood to lose millions in uninsured deposits with an injection of government money. As Mises Institute senior editor Ryan McMaken pointed out in an article, the government effectively backstopped bad banking decisions made by rich people and corporate leaders. He pointed out that the $250,000 FDIC insurance already covered most average depositors. Moreover, it is extremely easy to acquire deposit insurance on much more than $250,000 by simply keeping money at more than one bank. That $250,000 limit applies to the deposits at each bank where a depositor keeps funds. For customers with high liquidity needs, the financial sector offers tools for dealing with the risk of exceeding FDIC limits. In an illustration of the laziness and arrogance that so characterizes our modern financial class, however, many of the wealthiest depositors at Silicon Valley Bank couldn’t be bothered with managing their deposits, and they essentially ignored the deposit-insurance rules that even a ten-year-old understands when opening his first bank account. By bailing these people out, the government incentivizes even more lazy decision-making in the future. And as Schiff pointed out, the bailout effectively raised FDIC protection from $250,000 to infinity. They just set the precedent. I know they haven’t codified it into law. But they just set the precedent of bailing out the depositors of these two banks.” Bailing Out Banks But the Fed and the Treasury didn’t bail out banks, did they? Well, actually, they did. The Fed created a “Bank Term Funding Program” (BTFP) that will offer loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging US Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. Banks will be able to borrow against their assets “at par” (face value). According to a Federal Reserve statement, “the BTFP will be an additional source of liquidity against high-quality securities, eliminating an institution’s need to quickly sell those securities in times of stress.” In other words, the plan creates a mechanism for banks to acquire capital they couldn’t otherwise access under normal market conditions. Practically speaking, any bank teetering on the brink can get an infusion of cash based on their bond holdings without selling into the market at a big loss as SVB was forced to do. In simple terms, any failing bank now has easy access to a cash infusion. That, my friends, is a bailout. So, while the government can plausibly claim it is not bailing out SVB or Signature Bank – both institutions are being allowed to go under – it is bailing out banks that are in situations similar to the one SVB and Signature Bank were in before they collapsed. As Schiff noted in another tweet, “All the banks that were dumb enough to buy long-term Treasuries and MBS (mortgage-backed securities) when yields were at all-time record lows have now been bailed out by the Fed.” That was a lot of banks. McMaken sums it up. The official propaganda coming out of the administration, and from the usual Fed fanboys, is that none of this is a bailout. That’s a lie. The new steps being taken by the Fed and by the Treasury Department’s FDIC are indeed ultimately bailouts for billionaires and other wealthy depositors. Moreover, this new program will require at least a partial return of quantitative easing. There’s no way to guarantee such huge sums of money without having to fall back on inflationary monetary policy yet again. This also means price inflation won’t be going away.” Tyler Durden Thu, 03/16/2023 - 09:32.....»»

Futures Rebound After Worst Week Of 2023 US index futures jumped after suffering their worst weekly drop of 2023, as traders looked for fresh opportunities to buy stocks while assessing the outlook for growth. S&P 500 futures rose 0.5%, rising just shy of 4,000 by 7:45 a.m. ET after the underlying benchmark fell 1.1% in the last trading session. Nasdaq 100 futures rose by about 0.6% after the tech-heavy gauge tumbled 1.7% at the end of last week. European and Asian stocks also rose; the Bloomberg Dollar Spot Index turned red after retreating from the day’s highs, lifting most Group-of-10 currencies. Treasuries edged lower, mirroring moves in global bond markets. Gold was little changed, oil fell and bitcoin resumed losses after gains overnight In premarket trading, cancer drugmaker Seagen soared after the Wall Street Journal reported that Pfizer is in early-stage talks to acquire the cancer therapy developer worth around $30BN. Pfizer shares slipped. Here are some other notable premarket movers: Best Buy (BBY) shares drop 1.8% after Telsey downgraded the electronics retailer, saying the company’s business is likely to experience a further decline in the near term. Fisker (FSR) climbs 7.8% after the carmaker  posted 4Q results and forecast 8% to 12% annual gross margin and potentially positive Ebitda for 2023. FuboTV (FUBO) rises 8.2% after posting 4Q revenue that beat the average analyst estimate. Focus Financial Partners (FOCS) shares are halted after the company agreed to be acquired by affiliates of CD&R for $53 per share. Enphase Energy Inc. (ENPH) shares are up 1.9% after Janney Montgomery upgraded the company to buy, citing attractive valuation. Li-Cycle shares (LICY) rise 8% after the firm announced that one of its US subsidiaries had been granted a $375 million loan offer from the Biden administration. Lucira Health (LHDX) shares surge 240% after the FDA issued an emergency use authorization for the company’s Covid-19 and flu test. Payoneer Global (PAYO) gains 5% after Jefferies initiated coverage with a buy recommendation, saying the payments firm suffered from a “complexity discount.” Pulmonx Corp. (LUNG) rises 3.8% as Wells Fargo upgrades to overweight, saying the company’s fourth-quarter results “represent a turning point for the company.” Range Resources (RRC) shares slump 7.5% after Pioneer Natural Resources said it was not “contemplating a significant business combination or other acquisition transaction” in a statement Friday evening. Seagen (SGEN) shares soar 14% after the Wall Street Journal reported that Pfizer is in early-stage talks to acquire the cancer therapy developer. Tegna (TGNA) shares slump 22% after the Federal Communications Commission shelved Standard General’s proposed $5.4 billion buyout of the broadcaster. Union Pacific (UNP) shares climb 10% after the rail freight company said it was looking for a new CEO following pressure from a hedge fund. Universal Insurance Holdings (UVE) rises 1.8% after Piper Sandler upgraded the insurer to overweight, anticipating strong earnings in 2023 on higher prices and potential tort reform via a bill that seeks to reduce unnecessary litigation XPeng (XPEV) shares gain 5% after the Chinese electric-vehicle maker is included in the Hang Seng China Enterprises Index The S&P 500 has fallen over the past three weeks amid concerns that renewed price pressures will prompt more (and bigger) rate hikes from the US central bank. An unexpected acceleration in the personal consumption expenditures price index boosted expectations for policy tightening, while solid income and spending growth data further allayed fears of an imminent recession. Traders await durable goods data due later on Monday. Monday’s advance may signal traders are looking “towards the end of the potential bearish correction brought by last week’s decreased appetite for riskier assets, after investors digested the prospect of longer hawkish monetary stances from central banks,” said Pierre Veyret, a technical analyst at ActivTrades. Others - such as MS permabear Mike Wilson - remained bearish: Wilson said March will see stronger bear-market headwinds for stocks in a note on Monday. Fresh earnings downgrades will weigh on markets, with the S&P 500 potentially sliding as much as 24% to 3,000 points. Wilson also said that those treading into this market risk falling into a “bull trap”, a view echoed by Torsten Slok, chief economist at Apollo Global Management. “A generation of investors has since 2008 been taught that they should buy on dips, but today is different because of high inflation, and credit markets and equity markets are underestimating the Fed’s commitment to getting inflation down to 2%,” Slok wrote in a note. Stock markets that had mostly shrugged off forecasts for higher interest rates are finally giving way to a swift repricing of yields. Traders are now pricing US rates to peak at 5.4% this year, compared with about 5% just a month ago, as an acceleration in the Federal Reserve’s preferred inflation gauge dashes hopes for an imminent pause in policy tightening. Meanwhile, JPMorgan strategists led by Mislav Matejka said last year’s strong outperformance in cheaper, so-called value stocks over growth peers is likely to reverse soon as the economic recovery slows. The next move for investors in the following month or two might be to go “outright underweight value versus growth,” they wrote in a note. Ironically, that comes as JPM initiated coverage of two big US online real estate firms, Zillow Group at overweight and Redfin at neutral, as it forecasts a recovery in the property market. European stocks also rose as investors are tempted by lower prices following the largest weekly selloff since December. The Stoxx 600 is up 1.2% with tech, retail and consumer products the best-performing sectors. The bounce ignores the surge in German benchmark yields which hit 2.58%, the highest since 2011, on bets the European Central Bank will extend its tightening cycle beyond this year. Here are some of the biggest movers on Monday: Shell rises as much as 2.4% after Goldman Sachs upgrades the oil and gas company to buy from neutral, following a strong earnings season for oil majors Associated British Foods shares rise as much as 2.7% after the food processing and retailing company said it sees total sales for the first half more than 20% ahead of last year Michelin gains as much as 3.1% after Goldman Sachs upgraded the French tiremaker to buy from neutral, noting “underappreciated tailwinds” including lower raw material and logistics costs Hennes & Mauritz shares jump as much as 4.2% after Bank of America upgraded the clothing retailer to buy from underperform, citing prospects for a profit recovery this year Bunzl shares gain as much as 4.2%, hitting the highest intraday since August, after the distribution group’s results were marginally better than expected across the board, showing business model resilience Haleon shares rise as much as 1% after Bloomberg News reported the consumer health business, spun out of GSK last year, is exploring a divestiture of its ChapStick lip balm brand PostNL shares tumble as much as 12%, the most since October, after the Dutch delivery firm’s new FY23 Ebit guidance came in 43% below consensus Dechra Pharmaceuticals tumbles as much as 18% after the British animal health-care company posted a profit decline in the first half and forecast FY guidance that disappointed Earlier in the session, Asian stocks declined as traders worry about the prospect of further interest rate increases by the Federal Reserve after an unexpected acceleration of US inflation. Investors were also cautious ahead of a key political meeting in China.  The MSCI Asia Pacific Index dropped as much as 0.8%, led by technology and materials shares. Australia and South Korea were among the worst-performing markets, while Japan bucked the region’s trend following a pledge from the Bank of Japan governor nominee to maintain ultra-loose monetary policy. Chinese and Hong Kong benchmarks edged lower as investors eyed the National People’s Congress meeting starting this weekend. They are showing a preference for onshore stocks over Hong Kong peers amid expectations that more pro-growth policies will be announced. A strong rally in Asian stocks has hit a wall this month amid renewed worries of US policy tightening and a lack of positive catalysts for Chinese shares. A hotter-than-expected set of data in the Fed’s preferred inflation gauge Friday spurred a hawkish recalibration of expectations for rate hikes, pressuring risk assets. Asian emerging markets will “certainly not be immune” from “spillover risks” of the rebound in US inflation, said Vishnu Varathan, Asia head of economics and strategy at Mizuho Bank. Prospects of tighter policy for a longer period “will hold feet to fire for valuations.” Japanese equities closed mixed, as investors mulled the unexpected acceleration of US inflation data that suggested potential further interest rate hikes by the Federal Reserve. The Topix rose 0.2% to close at 1,992.78, while the Nikkei declined 0.1% to 27,423.96. The yen strengthened about 0.1% after tumbling 1.3% Friday to 136.48 per dollar. Fanuc contributed the most to the Topix gain, increasing 2.9% after it was upgraded at Nomura. Out of 2,160 stocks in the index, 1,478 rose and 591 fell, while 91 were unchanged. “Japanese equities were mainly influenced by the higher than expected US PCE data, and the rising US interest rates would make the environment tougher for growth stocks,” said Hirokazu Kabeya, chief global strategist at Daiwa Securities. “However, compared to US stocks, Japanese stocks are still supported by a weaker yen and this is likely to continue for some time.” Australian stocks declined; the S&P/ASX 200 index fell 1.1% to close at 7,224.80, dragged by losses in mining shares. The materials sub-gauge dropped the most since Oct. 28, continuing a four-day losing streak, after iron ore slumped.  In New Zealand, the S&P/NZX 50 index fell 0.9% to 11,793.33 In FX, the Bloomberg Dollar Spot Index was steady and the greenback traded mixed against its Group-of-10 peers. Sweden’s krona and the pound were the best performers while the New Zealand and Australian dollars were the worst. The euro was steady at $1.0550. Bund yields followed Treasury yields higher after an early drop. the 10-year yield rose to the highest since 2011 as traders are betting the ECB will extend its tightening cycle beyond this year, pushing back expectations for a peak in interest rates into 2024 for the first time. Focus is on speeches by policymakers The pound rose 0.2% against the dollar, snapping a three-day decline, to trade around 1.1966 amid speculation of an imminent deal on the Northern Ireland protocol. Gilts yields rose as bets on BOE rates pricing turned higher. The yen steadied near a two-month low as currency traders weighed remarks from BOJ governor nominee Kazuo Ueda at his second parliamentary hearing. Ueda said monetary easing should continue in support of the economy’s recovery, a comment that suggests he won’t seek an immediate change in policy if he is approved to helm the central bank The New Zealand dollar underperformed its G-10 peers. RBNZ chief economist Paul Conway said inflation is “far too high,” labor market is “incredibly tight”. The Australian dollar also tacked lower. RBA chief Philip Lowe’s expectation of further interest-rate rises prompted economists and money markets to narrow the odds of a recession In rates, Treasury yields reversed a drop to inch up, led by the front end following a wider drop across German bonds, as traders wagered that the European Central Bank will extend its rate-hiking cycle further into 2024. US yields were cheaper by up to 1.7bp in front-end of the curve with 2s10s flatter by almost 1bp; 10-year yields around 3.95%, less than 1bp cheaper vs. Friday session close with Germany 10-year lagging by 3bp vs. Treasuries.  Bund futures are lower as traders push back bets on when ECB rates will peak until 2024 for the first time. German 10-year yields are up 4bps. In commodities, oil fell as concerns that the Fed will keep on raising rates eclipsed the latest disruption to supplies in Europe and optimism over a demand recovery in China; WTI hovered around $76.30. Spot gold is flat at around $1,810. Bitcoin is modestly firmer on the session, +1.0%, but off initial best levels and well below 24k. RBI Governor Das said at the G20 that there is now wide recognition of major risk with crypto. Looking at today's calendar, we get the February Dallas Fed manufacturing activity, January durable goods orders, and pending home sales; elsewhere we also get Japan January retail sales, industrial production, Italy February manufacturing confidence, economic sentiment and consumer confidence index, Eurozone February services, industrial and economic confidence, January M3, Canada Q4 current account balance. Fed speaker slate includes Jefferson at 10:30am; Goolsbee, Kashkari, Waller, Logan, Bostic and Bowman are scheduled later this week. On the earnings front, Occidental Petroleum, Workday, and Zoom report. Market Snapshot S&P 500 futures up 0.5% to 3,994.25 STOXX Europe 600 up 1.0% to 462.49 MXAP down 0.5% to 157.92 MXAPJ down 0.8% to 511.47 Nikkei down 0.1% to 27,423.96 Topix up 0.2% to 1,992.78 Hang Seng Index down 0.3% to 19,943.51 Shanghai Composite down 0.3% to 3,258.03 Sensex down 0.4% to 59,220.58 Australia S&P/ASX 200 down 1.1% to 7,224.81 Kospi down 0.9% to 2,402.64 German 10Y yield little changed at 2.56% Euro little changed at $1.0555 Brent Futures up 0.4% to $83.48/bbl Gold spot down 0.1% to $1,809.86 U.S. Dollar Index little changed at 105.15 Top Overnight News from Bloomberg Three quarters of the 1,500 UK business leaders polled by BCG’s Centre for Growth believe the economy will shrink in 2023 but only 20% plan to shed staff, fewer than the 29% who plan to increase headcount: BBG Rishi Sunak and Ursula von der Leyen will meet in the UK in the early afternoon on Monday for final talks ahead of an expected announcement of a post-Brexit settlement for Northern Ireland: BBG The ECB is very likely to go ahead with its intention to raise interest rates by a half-point when it meets next month, President Christine Lagarde told India’s Economic Times: BBG Bloomberg’s aggregate index of eight early indicators suggests China’s economy rebounded in February after the long holiday, although it points to an uneven recovery with strong consumption following the scrapping of Covid rules but lagging industrial activity: BBG Macron announced he will visit China in April and hopes to encourage Beijing to pressure Moscow into reaching a settlement of the Ukraine war. SCMP New home sales by floor area in 16 selected Chinese cities rose 31.9% month-on-month in February, compared with a fall of 34.3% in January, according to China Index Academy, one of the country’s largest independent real estate research firms. RTRS    American companies, including McDonald’s, Starbucks, Ralph Lauren, Tapestry, and others, are expanding in China in anticipation of a consumer-led rebound in the economy as the post-reopening recovery continues. WSJ China Renaissance confirmed Chairman Bao Fan has been assisting in a Chinese probe since he disappeared abruptly earlier this month. The investigation is being run by authorities, and Renaissance will "cooperate and assist with any lawful request." It was reported last week that Cong Lin, the firm's former president, has been involved in a probe since September. BBG BOJ policy – incoming governor Kazuo Ueda says it’s premature to discuss normalization as “big improvements” must be achieved in the country’s inflation trajectory before changes can happen (Ueda says the benefits of monetary easing exceed the costs). RTRS Russia has halted supplies of oil to Poland via the Druzhba pipeline, a move that comes one day after Poland sent its first Leopard tanks to Ukraine. RTRS US insurance regulators on Monday will meet to consider boosting capital charges on complex corporate loan instruments that some in the industry warn are creating excessive risk. The issue pits insurers backed by large private equity firms such as Blackstone, Apollo Global and KKR — who are increasingly investing in the loans — against traditional life insurers such as MetLife and Prudential Financial, who warn of growing risks. FT Pfizer is in early-stage talks to acquire biotech Seagen, valued at about $30 billion, and its pioneering targeted cancer therapies. WSJ Hedge fund Soroban Capital Partners is pushing Union Pacific Corp.  to replace Chief Executive Lance Fritz, arguing the railroad has underperformed on his watch, according to people familiar with the matter. WSJ A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks traded cautiously heading into month-end and a slew of upcoming releases including Chinese PMI data, with headwinds also from the US where firmer-than-expected Core PCE data spurred hawkish terminal rate bets. ASX 200 was negative as participants digested a deluge of earnings and with the mining industry leading the retreat seen across nearly all sectors aside from energy which benefitted from a jump in Woodside Energy’s profits. Nikkei 225 price action was contained by a lack of pertinent macro drivers and with BoJ Governor nominee Ueda’s largely reiterated prior comments at the upper house confirmation hearing. Hang Seng and Shanghai Comp. were choppy with initial pressure amid geopolitical frictions after the G20 finance ministers meeting failed to agree on a communique due to opposition from Russia and China, while National Security Adviser Sullivan also warned there will be a real cost if China provides military assistance to Russia for the Ukraine war. However, Chinese stocks gradually recovered from the early weakness and briefly turned positive with sentiment helped by a continued liquidity injection and after China drafted guidelines to regulate financial support in the housing rental market, although the gains proved to be short-lived. Top Asian News China drafted guidelines to regulate financial support in the housing rental market and began to solicit public opinion, according to China.org.cn. Macau dropped COVID-19 mask mandates for most locations aside from public transportation, hospitals and some other areas, according to Reuters. BoJ Governor Kuroda commented that he is resolved to keep ultra-loose policy and that the BoJ expects core consumer inflation to slow beyond 2% in both fiscal 2023 and 2024, according to Reuters. BoJ Governor nominee Ueda says CPI growth will slow below 2% in fiscal 2023 and that it takes time for CPI to meet the 2% target stably and sustainably, while he added that the BoJ's current monetary easing is appropriate and that it is appropriate to continue monetary easing from now on as well. Adds, changing the 2% inflation target into a 1% target would strengthen the JPY in the short-term, weaken it long-term. Overshooting commitment is aimed at exerting powerful announcement effects on policy, need to be mindful of risk of inflation overshooting too much. Targeting shorter-dated JGBs than current 10yr yield is one idea if BoJ were to tweak YCC in the future, but there are many other options. Does not think Japan has reached the reversal rate, in which financial transmission channels are hurt so much that the demerits of easing exceed benefits. European bourses are firmer across the board, Euro Stoxx 50 +1.8%, after a cautious APAC handover following Friday's selling pressure. Sectors are all in the green with Energy names at the top of the pile, given benchmark pricing and Shell's upgrade at GS. Stateside, futures are currently posting more modest upside of around 0.5% with Fed's Jefferson (voter) the session's main event. Tesla's (TSLA) German plant has hit a production level of 4,000 per week, three weeks ahead of schedule, according to Reuters. Top European News UK PM Sunak and European Commission President von der Leyen will meet at 12:00GMT/07:00EST in Windsor, according to BBC; if there is a deal, a press conference could be around 15:30GMT. Earlier, UK PM Sunak's office said UK PM Sunak will meet with EU's von der Leyen for talks on Northern Ireland Brexit deal late lunchtime on Monday and will hold a Cabinet meeting later on Monday. Furthermore, PM Sunak and von der Leyen will hold a news conference if a deal is reached, while Sunak will also address parliament if there is a deal. UK ministers are unlikely to quit re. the Brexit deal, with the likes of Steve Baker and others liking what they are hearing but waiting to see the full text, according to Times' Swinford; ERG say they would love to back the deal but if the DUP does not back the deal it cannot and won't support it. UK PM Sunak said they are giving it everything they’ve got regarding talks for a post-Brexit deal for Northern Ireland and he will try to resolve the concerns the DUP Party have regarding a new Brexit deal for Northern Ireland. It was later reported that PM Sunak said he won big concessions from the EU, according to The Sunday Times and The Times. UK Deputy PM Raab said there is real progress on a trade deal and he is hopeful for good news on the Brexit deal within days, not weeks, and also noted that Northern Ireland’s DUP does not have a de-facto veto over the Brexit deal. In other news, Raab said he will resign if an allegation of bullying against him is upheld, according to Reuters. ECB’s Lagarde said headline inflation is still unacceptably high and core CPI is at a record level, while she added that they want to bring inflation back to the 2% target and noted that rate decisions are to be data dependent. Magnitude 5.7 earthquake that struck the Eastern Turkey region has been revised to 5.2, according to the EMSC. FX DXY retained a bid between Fib and psychological level within 105.360-070 range; though has erred towards the lower-end of these parameters going into the US session. Sterling 'outperforms' after a dip through 200 DMA vs Buck on UK-EU NI trade deal optimism, with EUR/GBP within 10 pips of 0.8800 at worst. Kiwi flags as NZ Q4 retail sales fall and Aussie feels more contagion from Yuan weakness; antipodeans near 0.6150 and 0.6710 respectively. Euro pivots 1.0550 vs the Dollar and Yen pares back from sub-136.50 amidst Fib support nearby. PBoC set USD/CNY mid-point at 6.9572 vs exp. 6.9586 (prev. 6.8942) Commodities WTI and Brent are a touch softer though have lifted off overnight USD 75.58/bbl and USD 82.38/bbl lows given the improvement in risk sentiment throughout the European morning. Though, the benchmarks are shy of USD 76.82/bbl and USD 83.60/bbl peaks with numerous geopolitical updates factoring into the overall indecisive price action. Russia halted supplies of oil to Poland via the Druzhba pipeline, according to PKN Orlen's CEO. Subsequently, Russia's Transneft says payment orders for oil shipments to Poland were not issued in the second half of February, no oil flows to Poland currently, via Tass; paperwork for oil supplies to Poland has not been completed. Crude oil deliveries via the Druzhba pipeline to the Czech Republic are running as planned, according to Mero. Spot gold is little changed with the yellow metal in a tight sub-10/oz range above the USD 1800/oz handle, taking its cue from the similarly cagey USD. Base metals are, broadly speaking, firmer following overnight weakness but remain in proximity to the troughs from Friday's session. Fixed Income Bonds remain in bear clutches after another failed recovery rally. Bunds probe new cycle low at 133.61 (session high 134.36) have fallen just shy of key resistance area, associated 10yr at a YTD peak of 2.57%. Gilts wane just two ticks below 101.00 and test bids/support into 100.00 and T-note hugs base of 111-07/16 range ahead of US data, Central Bank speakers and crunch UK-EU Brexit talks. Geopolitics Russia's Kremlin, on China's peace plan, says no conditions for peace 'at the moment' in Ukraine, according to AFP. G20 Finance Ministers meeting concluded without a joint communique as China and Russia opposed the draft with the two countries said to be upset by the use of a G20 platform to discuss political matters, according to sources cited by Reuters. India’s chair statement noted that there was a discussion about the war in Ukraine and it reiterated the G20 position on deploring in the strongest terms aggression by Russia, as well as reiterated the G20 position demanding Russia’s complete and unconditional withdrawal from Ukrainian territory. Russian President Putin said Russia has taken into account NATO’s nuclear potential and claimed that the west wants to liquidate Russia, according to TASS. Russian Wagner Group boss Prigozhin said his fighters captured the village of Yahinde which is north of Bakhmut, according to Reuters. US President Biden said on Friday that he is ruling out Ukraine’s request for F-16 aircraft for now but added they have to put Ukrainians in a position where they can make advances this spring and summer. Biden also said he doesn’t anticipate a major initiative on the part of China to provide weapons to Russia and that he hasn’t seen anything in the Chinese peace plan that would be beneficial for anyone but Russia, while he also suggested it is possible that Chinese President Xi did not know about the Chinese spy balloon, according to an ABC News interview. US National Security Adviser Sullivan said China has made the final decision regarding providing aid to Russia and has not taken the possibility of providing lethal aid to Russia off the table, while he noted the consequences have been made clear to China and warned there will be a real cost if China provides military assistance to Russia for the Ukraine war, according to an interview with ABC News. There were also comments from Republican lawmaker McCaul that China is thinking of sending drones and other lethal weapons. Belarus President Lukashenko will pay a state visit to China from February 28 to March 2. "The visit will serve as an opportunity for the two sides to further promote comprehensive cooperation", according to Global Times. Germany, France, and the UK are considering making concrete security guarantees to Ukraine as an incentive for Ukrainian President Zelensky to engage in peace talks with Russia, according to the WSJ. German Defence Minister Pistorius commented regarding the Chinese peace plan and stated that they will judge China by its actions, not its words, according to Reuters. US Event Calendar 08:30: Jan. Durable Goods Orders, est. -4.0%, prior 5.6% Jan. -Less Transportation, est. 0.1%, prior -0.2% Jan. Cap Goods Ship Nondef Ex Air, est. 0%, prior -0.6% Jan. Cap Goods Orders Nondef Ex Air, est. -0.1%, prior -0.1% 10:00: Jan. Pending Home Sales (MoM), est. 1.0%, prior 2.5% Jan. Pending Home Sales YoY, prior -34.3% 10:30: Feb. Dallas Fed Manf. Activity, est. -9.2, prior -8.4 Central Bank Speakers 10:30: Fed’s Jefferson Discusses Inflation and the Dual Mandate DB's Jim Reid concludes the overnight wrap As we close out a tougher second month of the year than the first tomorrow night, Henry pointed out an interesting stat to me on Friday. January was the best January for the Global Bond Ag index this century whereas February so far is on course to be the worst February over the same period. The very strong financial market performance between mid-October and end-January was in our opinion based mostly around US terminal pricing being remarkably stable between 4.75-5.1%. In the previous 9-10 months it was constantly being repriced from around 1% to 5% causing chaos in the financial world. On Friday, US terminal closed at 5.4%, catching up to DB's street leading 5.6% forecast. Clearly this has been bubbling up since payrolls (Feb 3), the CPI revisions (Feb 10), CPI beat (Feb 14), retail sales beat (Feb 15), and even things like Manheim used prices spiking higher again in January and February. Last Friday's core PCE was another important piece of evidence with the 0.6% mom print above expectations of 0.4%. Even though the concern was that it would beat, this added fuel to the fire and markets still struggled to deal with the ramifications with 2yr, 10yr and terminal up +11.6bps, +6.8bps and +5.3bps to 4.814%, 3.943% and 5.40% respectively. 2yr yields are the highest since July 2007 and terminal the highest this cycle. For core US PCE, the 3m, 6m and 12m annualised numbers are now 4.8%, 5.1% and 4.7% and thus strongly hint at inflation stickiness. With this data it’s tough to rule out a return to 50bps hikes even if that’s not yet the base case. While that uncertainty is there, markets will stay on edge. In credit we downgraded our tactical bullishness in our "Credit: Rally ends soon" (Jan 30) note (link here) and suggested reducing exposure to dollar credit immediately. The biggest challenge though is when to officially run for the preverbal hills given we've had a long standing YE 23 target for HY of +860bps linked into our US recession call by year end. In the near-term we’re a little more relaxed on European credit. Indeed our credit team published a €HY update this morning looking at tight spreads in the face of growing fundamental vulnerabilities and the highest share of bonds rated B or worse in the last 10 years. However with supply unlikely to pick up materially, favourable technicals should keep spreads supported for now. Still, we think concerns about deteriorating credit metrics will eventually prevail and see €HY selling off in H2’23 alongside the US market when signs of a growth slowdown become even more tangible (see here for the full text). Linked into this view, the recent US data probably makes us more confident of a hard landing given the boom-and-bust nature of this cycle that has been increasingly clear step-by-step over the last 2-3 years. This trend first emerged with the extraordinarily excessive covid stimulus, which in turn led to an enormous spike in the money supply, which brought structural inflation, and was always going to require an immense amount of tightening to control. An immaculate disinflation and soft landing from here would defy all historical precedent. Time will tell if we're wrong and history needs to be rewritten but this feels a fairly straight forward US cycle to predict. For this week, with the current sensitivities over prices, all eyes will be on the flash February European CPI releases (France Tues, Germany Weds, Italy and EA Thurs) and labour market data released throughout the week. The CPI numbers follow Friday's upward revisions for the January report in the Euro Area, where core inflation was revised up a tenth to a new record of +5.3%. We also have the global PMIs (and US ISMs) with manufacturing on the first day of the month (Wednesday) and services (Friday). ECB speakers will have plenty of opportunity to reflect on the data with at least 8 appearances already scheduled for next week. For a more backward-looking assessment, markets will also have the ECB's account of the February meeting due Thursday to read through. Our own European economists upgraded their ECB call last week and now see two +50bps hikes in March/May followed by a final +25bps hike in June, which would imply a terminal of 3.75%, up from 3.25% previously (see full note here). Fed speakers are also prevalent as you'll see in the day-by-day week ahead. There are six FOMC voters and there is a lot for them to chew over at the moment, especially after Friday's PCE data. Outside of the ISMs, US data will revolve around consumer and manufacturing activity. That will include the Conference Board's consumer confidence index tomorrow, Chicago PMI (also tomorrow) and a host of regional central bank indices. Other notable indicators due include durable goods orders today and the advance goods trade balance tomorrow. Asian equity markets are trading lower this morning with the KOSPI (-1.19%) leading losses across the region while the Hang Seng (-0.75%), the CSI, (-0.21%) the Shanghai Composite (-0.12%) and the Nikkei (-0.19%) all trading in the red. In overnight trading, US stock futures are fairly flat alongside US yields. Earlier this morning, the government’s nominee for the Bank of Japan (BOJ) Governor, Kazuo Ueda in his speech to the parliament stressed the need to maintain the central bank’s ultra-loose policy to support the Japanese economy despite various market side-effects. Meanwhile, candidates for the BoJ deputy governor (Uchida and Himino) will appear for hearings in the Upper House tomorrow, following this week's Lower House hearings. Looking back on last week now, both equities and fixed income retreated as markets priced in further central bank hikes following mounting evidence that inflation was continuing to prove persistent. The selloff gathered pace on Friday, following the aforementioned US PCE inflation data surprising firmly to the upside, with headline PCE at +0.6% (vs +0.5% expected) month-on-month, and +4.7% (vs +4.3% expected) year-on-year. Further adding to the view that inflation is durable, core PCE inflation also came in above consensus, with the month-on-month print at +0.6% (vs +0.4% expected) whilst year-on-year came in at +4.7% (vs +4.3% expected). This data led markets to swiftly priced in a more aggressive price of rate hikes from the Fed. In particular, there was growing speculation that the Fed might step up their hikes to 50bps again, with a +30.3bps move priced into the next meeting in March, up from +27.5bps at the start of the week. US terminal rate timing is starting to be evenly balanced between July (5.400%) and September (5.401%), rather than the July peak we've had for several weeks. It's also at the highest level of the cycle. The pricing for the July meeting climbed up +11.8bps last week (+5.3bps on Friday), while the September meeting pricing rose +14.6bps last week (+6.9bps on Friday). Expectations also increased for rates remaining higher for longer, with the December meeting now implying a 5.28% rate. This was up +11.0bps on Friday and +21.6bps on the week – marking a fifth consecutive weekly increase. Renewed expectations of additional hikes by central banks triggered a sell-off in both US and European equities on Friday. The S&P 500 fell back -1.05% on Friday, finishing off the week down -2.67% and marking its worst weekly performance so far this year. The Nasdaq similarly retreated, down -3.33% last week (-1.69% on Friday), its largest weekly down move since mid-December. European equities fell back too, with the STOXX 600 retreating -1.42% last week (-1.04% on Friday). This sell-off was echoed across fixed income markets, with 10yr Treasury yields up +6.6bps on Friday and +12.8bps over the course of last week. 2yr Treasuries significantly underperformed, as yields rose +11.6bps on Friday and +19.7bps over the week, reaching their highest level since July 2007. It was a similar story in Europe, with the 2yr German yield up +11.7bps on Friday in their largest up move since December and hitting their highest level since October 2008. Over the course of the week, that left them up +15.3bps at 3.03%. In the meantime, 10yr bund yields rose +9.7bps last week (+5.9bps on Friday) to 2.54%, and the German 2s10s curve inverted to -50bps after it fell -5.6bps on Friday, which made up nearly the entirety of the -5.8bps flattening last week. Finally, commodity markets fell back most of last week before a rally in oil on Friday (WTI +1.23% & Brent +1.16% Friday) left WTI crude down just -0.03% on the week at $76.32/bbl and Brent crude up +0.19% at $82.16/bbl. On the other hand, metals saw continued selling on Friday, with copper futures falling back -3.81% overall (-2.64% on Friday), and nickel down -4.93% last week (-3.33% on Friday). Looking at the market more broadly, the Bloomberg Industrial Metals Index fell back -3.17% over the course of last week (-2.44% on Friday). All this likely down to some concerns that the Chinese reopening isn't quite as smooth and bouyant as hoped. Tyler Durden Mon, 02/27/2023 - 08:05.....»»

Pfizer Inc. is in talks to acquire biotech Seagen Inc., according to people familiar with the matter, the latest potential deal for a big drug company aimed at adding a promising class of targeted cancer therapies......»»

CBDCs - The Good, The Bad, & The Downright Ugly Authored by Alasdair Macleod via GoldMoney.com, There has been much comment over the likelihood that central bank digital currencies will be introduced. I conclude they are unnecessary — a red herring. But it does allow us to discuss their possible relevance to a new Asian super-currency. Earlier this month, the Bank of England in partnership with the UK Treasury produced a white paper on the subject, which waters down the objectives identified by the Bank for International Settlements considerably. The British proposal is a bad idea because it is pointless and I explain why.  In this article, I describe how a new gold-backed currency can do away with the US dollar for trade settlements and commodity purchases entirely between participating nations in the Russia China axis. Some informed commentary on the topic suggests that a blockchain will be involved, and Sberbank, the Russian state-owned lender has already issued a gold-linked fund designed to be available to the public by being compatible with ethereum. Perhaps it is front-running developments… The ugly side in our title is found in the BIS’s dystopian proposals, which sees CBDCs as an opportunity to allow central banks to double down on their attempts to manage economic outcomes while restricting personal freedom.  Messing about with fiat currency alternatives such as CBDCs could end up revealing the formers’ fragility.  CBDCs will take years to implement in any major currency anyway, during which fiat currencies led by the dollar are likely to fail anyway. Introduction It is not clear what encouraged central banks to think about introducing their own digital currencies, other than possibly a feeling that if they didn’t do something, then private sector money could threaten their monopoly.  Initially, bitcoin was touted as sound money with a hard stop of 21,000,000 coins and proof of ownership recorded on a blockchain. Bitcoin’s strength was to be the opposite of fiat currency weakness, whose expansion is the primary means by which a central bank stimulates an economy. But if central banks think that bitcoin could overturn fiat currencies, they merely exposed their own ignorance about the nature of money and credit. Bitcoin is not legal money. As opposed to credit where there is a counterparty risk, the only lawful money is gold (and silver for small amounts), usually in coin, acting as an anchor for a gold substitute in the form of credit. Therefore, if bitcoin is to be regarded as money by its users, they must accept that they do not enjoy the protection of the law. In day-to-day transactions this might not matter to the parties involved. After all, they are free to exchange goods or services for anything — in the past family doctors have even been paid by their patients in cigars and whiskey.  Money and credit have a legal status which differs from other forms of property. Some things can only be acquired through legal tender, and bitcoin is not legal tender. But there is a further distinction which kills bitcoin and any copycat cryptocurrency stone dead: when ownership of legal money and credit transfers, it transfers absolutely, but this is not true for bitcoin.  Consider the situation if someone steals your wallet containing banknotes. There is no doubt that the thief has committed a crime. But if he spends the stolen banknotes in a shop, and the shopkeeper was not a party to the theft, then the banknotes become the shopkeeper’s property, and you have no claim against the shopkeeper. This is equally true if you had coins stolen, or the thief transferred credit from your bank account. This happens all the time today, and you may have wondered why your bank cannot recall the funds. A bank can recall funds if an error has occurred, and the error can be established in reconciliation differences between banks, such as a misposting. If the bank has made a mistake in the management of your deposit account, you may have a claim against the bank, but once funds have left your account the bank usually cannot reclaim them so the bank must bear the loss. But if the bank received valid instructions to transfer funds from your account, then on the transfer there can be no reclaim, even if your account was hacked. The basis was established in Roman law, which differentiated between money and credit in the normal course of banking, and a bank’s legal obligations to items, including money, held in custody. The former being mutuum, in modern accounting being a bank’s balance sheet liability or obligation in favour of the customer. And the latter is a depositum (not to be confused with the term bank deposit), whereby the property in the money remains with the customer. The difference between mutuum and depositum is not strictly limited to money and credit but extends to some other asset classes which can be transferred. For example, debts can be freely bought and sold, without the debtor’s agreement. After all, this happens when a bank’s customer transfers a bank’s obligation to him to another party by writing a cheque or tapping a debit card on a payment machine.  An interesting case occurred when Richard Cantillon, having acted as a banker, was sued by customers to whom he had loaned funds to acquire shares in John Law’s Mississippi venture. On taking in the shares as collateral, he immediately sold them. Technically, he remained liable for the return of the shares’ value. But Cantillon collected twice: the first time from the sale of the shares into the market which subsequently collapsed, and the second time when he sued the debtors for repayment of their loans. The Court of Chancery in London decided he was legally entitled to sue because the shares were in bearer form and not numbered, and therefore were not identified specifically as the debtors’ property. In other words, they were classed as mutuum. But bitcoin does not have the legal status that permitted Cantillon to claim that Mississippi shares were in effect mutuum and taken in onto his balance sheet, and not identifiable as a depositum. With its blockchain, Bitcoin is specifically identified property, just the same as ownership of a painting, or any tangible asset. Its downfall as a currency is that the blockchain identifies it as having been someone else’s property in the past. This may not matter to a current owner. But if the authorities have evidence that your bitcoin was previously stolen, used in money laundering, or purchased with the proceeds of crime, they can trace the bitcoin to you and seize them legally without compensation. Any protestation that they need the wallet key to regain possession counts for nothing: legally they may not be your property and if you refuse to allow access, you will be guilty of obstructing the law. Obviously, with cryptocurrencies being a relatively new development, this needs further testing in law and confirmation in multiple jurisdictions. But recent actions by various authorities and agencies to perfect recovery appear to be moving in this direction. Clearly, without the protection offered to legal money and credit, bitcoin cannot be used as a settlement medium except for ad hoc transactions. That is the first point. Even more important perhaps is its unsuitability for use as money, and a misunderstanding of the relationship between money and credit. Ever since Rome’s Twelve Tables setting out the original basis of Roman law dating from about 450BC and at the time when, according to Gaius in his Commentaries (on the Twelve Tables) Roman coins were first introduced, credit rather than coin has provided capital for merchants and businesses.  Credit has always been the principal means of financing ventures and trade. The Phoenicians trading in the Mediterranean and further afield will have needed credit a thousand years before Rome’s Twelve Tables became the basis of Roman law. And when credit became based on money as opposed to an obligation to deliver specific goods in Phoenician times, it required a certainty of value. Being inherently volatile, bitcoin is not suited for this role. And the hard stop on its quantity means that if it was to act as money ubiquitously, the continually increasing purchasing power that would likely ensue would kill off demand for credit based upon it. Fans of bitcoin might argue that that is the point, in which case they merely expose their ignorance of the relevance of credit to all economic development. Therefore, to the extent that central bankers are worried that bitcoin or other private sector monies pose a threat to their status as controllers of the currency, they are themselves ignorant of their trade. However, the idea of central bank equivalents in their own digital currencies has taken hold. The Bank for International Settlements took it upon itself to coordinate research into CBDCs, for which they have determined two separate roles. The first is when a central bank issues a CBDC purely for domestic circulation. It is presumed that citizens and foreigners, such as tourists, can use a CBDC so long as they are in jurisdiction. But they will become worthless outside the country. The second is collaborative CBDCs, when two or more central banks settle on a CBDC to be used to settle trade between their jurisdictions. This gives rise to the title of this essay: the good, the bad, and the ugly. The good may come from collaborative efforts to do without the fiat dollar, ensuring cross border trade can continue in the event that the dollar collapses, or if the US continues to weaponise it. The bad is considering the introduction of a CBDC for no good reason. And the ugly is when a CBDC is devised to give the state greater control to manipulate its citizens’ behaviour. The good On the information available, it appears likely that under the aegis of both Russia and China, a new currency will be issued for the purpose of replacing the dollar for commodity purchases and cross-border trade. This project centres on the Eurasian Economic Union (EAEU), which is the political vehicle which hosts the committee considering the matter. Already, on 26 December Russia’s state-owned Sberbank issued tokenised gold on the Sber blockchain, having launched its first digital asset some time ago based on factored invoices. Furthermore, having made its blockchain compatible with Ethereum, Sberbank intends to make it widely available to consumers. Given that Sberbank is state-owned, this project can be regarded as not just licenced by the state (digital financial assets require permission from the Central Bank of Russia) but perhaps as a testbed for the state’s own monetary intentions. And Sergey Glazyev, the senior Russian economist who is leading the EAEU committee clearly sees gold replacing the dollar as the monetary standard for cross-border settlement. In an article for Vedomosti on 27 December (the day after Sberbank announced its gold-linked digital asset), he said as much.[i] There are other gold related developments in Asia. Notably, this week it transpired that the Central Bank of Iran is in talks with Russia to create a stablecoin backed by gold for settling trade through the Astrakhan special economic zone, through which goods from Europe transit to the Middle East and south Asia. But when it came to central banks trying to come up with roles for CBDCs, none thought a CBDC would be deployed to facilitate a return to sound money. If they weren’t just trying to fend off private sector currencies, they were thinking up new ways to deploy fiat either to stimulate economic activity selectively, replace bank notes, or exercise greater control over individual users of currency. We do not know if Sergey Glazyev is considering using a CBDC to keep track of a new trade currency, but in the plans outlined below, it is unnecessary. Normal accounting conventions will suffice, and gold will provide the standard. Glazyev is also the moving light behind a new, enhanced Moscow gold exchange. And now, all the signals are pointing in the direction of cross-border transactions being settled in gold, or gold substitutes. One condition which will need to be in place is for a value for gold measured in fiat currencies to ensure there is sufficient available valued in goods to back inter-Asian trade. Despite the accumulation of gold by the central banks of the Shanghai Cooperation Organisation membership (SCO), some of them may not have sufficient official gold reserves to cover their trade deficits except for limited times, requiring a higher gold value in order to do so. And other members, such as Russia, could see continual accumulation of physical gold because of her net energy and commodity exports. Ideally therefore, instead of trade settlements being entirely in physical gold, they should be facilitated by a banking system based on gold which is properly valued. What is required is an entirely new currency backed by gold specifically created for cross-border trade. Presumably, this is what Glazyev is trying to achieve. But it is relatively simple and does not require blockchains and the paraphernalia of a CBDC. However, being a revolutionary concept, it might be established as a CBDC to provide extra credibility to satisfy those whose understanding of money and credit falls short. The bulleted list that follows is a brief outline of how a new trade settlement currency based on gold can be established to replace the fiat dollar in all transactions between member nations. It is designed to be politically acceptable to all involved, as well as a long-term practical solution to facilitate the Russian Chinese axis’s ambitions for an Asian industrial revolution free from interference by America and her allies. The essential elements are as follows: The announcement of the creation of a new central bank (NCB) and a new gold-based currency on the lines below will be made in advance of implementation to allow bullion markets to adjust to the new regime before it comes into existence.  A new central bank is then established, whose function is to issue a new digital currency backed by physical gold, available only to participating central banks. It will be designed to be a fully trusted gold substitute, fully independent of fiat currency values. The new currency will only be redeemable for gold by participating central banks. They are also free to add to their NCB currency reserves by submitting additional gold to the NCB at any time. The NCB’s eligible participants will be the central banks of participating nations, broadly limited to member nations of the EAEU, SCO, and BRICS+. The NCB’s currency is issued to the national central banks against their provision of a minimum 40% gold backing for it. For example, currency representing one million gold grammes secures an allocation of 2,500,000 currency units denominated in gold grammes. The gold does not have to be delivered to a central storage point but can be earmarked[ii] from within a central bank’s gold reserves, on condition that they are securely stored in Asian vaults on a list approved by the NCB. Commercial banks trading in member nations and elsewhere will be free to create and deal in credit denominated in the NCB’s new currency. Issuers and users of this credit are always free to acquire physical gold in the markets, should they wish to back credit created in the new currency with gold itself.  All taxes and restrictions on gold ownership must be fully rescinded by participating nations. An efficient central clearing system for commercial banks dealing in credit based on the new currency will need to be established. Accompanied by the major energy producers setting price benchmarks, Asian commodity exchanges will price all products in the new NCB currency, replacing pricing in US dollars completely for trade between participating member nations. The purpose of the new currency is to provide the basis for trade finance and other cross border financial settlements on a sound money basis. It is also likely to lead to participating nations placing a greater emphasis on their own currencies’ stability while providing a safe haven from a fiat currency system collapse, to which the establishment of gold backing for payment systems is likely to contribute in its consequences. All empirical experience informs us that when gold becomes the means by which credit is valued, credit’s own value becomes tied to that of gold and is not dependent on stability in credit’s quantity. This stability imparts pricing certainty to trade and investment, necessary conditions for maximising economic development. Constructed on the lines above, remarkably little physical gold would be required to underwrite cross-border payment values for trade in Asia and beyond. It should be simple and quick to establish. It must be free from interference from members of the western alliance trying to preserve their own fiat currency systems. And the 40% gold backing rhymes with the basic requirement for a metallic monetary standard set by Sir Isaac Newton, when he was Master of the Royal Mint. For participating central banks, the replacement of gold in their reserves for allocations of the new currency would represent a significant increase in their reserves. As confidence in the scheme builds, it could be argued that only minimal gold reserves need to be retained by participating central banks, with the balance swapped for the new currency. For example, the Reserve Bank of India officially possesses 787.4 tonnes of gold. Converted into the new gold currency, its value in reserves is uplifted to 1,968.5 tonnes equivalent.  One difficulty which will need to be considered is the repatriation of gold held in western central bank vaults. Between the Bank of England and the New York Fed, earmarked gold totals 10,693 tonnes. The bulk of gold held at the NY Fed appears to be earmarked for the IMF, Bundesbank, and Banca D’Italia. Very little Asian gold would appear to be stored there. More Asian gold is likely to be stored at the Bank of England. This could be a concern, because the Bank of England on instructions from the US Government refused to repatriate Venezuela’s gold when requested. If in losing its dollar hegemony the Americans become obstructive to Asian monetary plans, it could become a problem for nations with gold earmarked at the Bank of England. Presumably, the consequences for gold would be to drive the price up measured in dollars, euros, etc. Foreign central banks in the Asian camp would be selling down currency reserves to acquire gold. Furthermore, it would suit the new central bank to see a higher stable gold price as a starting point, which is the reason to let the market find a level between announcing plans for the NCB and implementing them. And it is worth making the point that if the price of oil adjusted by the price of gold is to be returned to its post war dollar value, the dollar price of gold should be $3,360. It could be argued that it’s not in China’s interests to undermine the dollar so dramatically, given her dependency on exports to the US and elsewhere. Undoubtedly, while being open about her desire to replace the dollar for cross-border transactions as much as possible, China has preferred to let the change be evolutionary. But the time for caution has ended, and unless China joins in with Russia’s plans, Russia will make all the running.  The bad and the ugly It should be noted that, to date, there are just two live retail CBDCs (the Sand Dollar in The Bahamas and DCash in the Eastern Caribbean). For a major jurisdiction to introduce a CBDC there are significant bureaucratic and technical issues to be addressed, which inevitably means that lead times are substantial. The first step is to come up with a discussion paper, which is what the Bank of England in conjunction with the UK Treasury did earlier this month. According to the Bank of England and the Treasury, there are two basic reasons for issuing a digital pound: people are not using cash as much as they used to, with digital payments becoming more common. And “there are new forms of money on the horizon, some of these could pose risks to the UK’s financial stability.” Let us address these two issues. Digital payments are indeed becoming more common. Credit cards have been around for decades, so there is nothing new there. The Bank is referring to debit cards, which authorise the transfer of a bank’s obligation a customer in accordance with the customer’s instructions. This form of payment has become progressively more efficient, leading to a public choice for paying with debit cards. A separate wallet for a CBDC, as proposed by the Bank, is unnecessary. That leaves us dealing with fear of the unknown — the new forms of money on the horizon, and the risk to financial stability. This is a straw man fallacy. There is no threat from private sector currencies. As pointed out earlier in this article, they lack the legal status of money and credit, and are entirely unsuitable. But what the bitcoin revolution has done is create a lot of excitement amongst the progressives, who feel a response is necessary. And reading the Britcoin’s consultation paper, we see that the intention is for a CBDC which is limited in its scope compared with some of the ideas coming out of the Bank for International Settlements’ own consultation documents. The UK’s proposed CBDC will use digital wallets and not require individual bank accounts with the Bank of England. Retail and business accounts at a central bank was one of the BIS’s ideas. But this cuts across the role of commercial banking and faces enormous technological challenges. If the Bank wishes to introduce a CBDC, then private sector wallets make more sense for this reason. They should allow payments to be made between individuals and businesses as if they are made in bank notes, and without these transactions being recorded at the Bank, they should retain their anonymity. The intention is that there will be no difference between a CBDC pound and a one-pound coin. The consultation paper argues that it is not intended to be a cash replacement, but an additional equivalent of cash payment. A CBDC pound will not earn interest, but there will be a limit on the quantity held in a wallet which is yet to be decided or how it is to be implemented. Implementation rings warning bells with respect to privacy. But the exercise appears to be pointless. At least in its scope it is not as ugly as some of the objectives coming out of the BIS. In an official video recorded by the BIS, Augustin Carstens, its General Manger, said the following: “The key difference with a CBDC is that the central bank will have absolute control on the rules and regulations that will determine the use of that expression of central bank liability. And also, we will have the technology to enforce that. Those two issues are extremely important and make a huge difference with respect to what cash is.” Carstens is describing a system where central banks intrude upon the use of their CBDCs, presumably through requiring individuals and businesses to maintain accounts at or under the control of a central bank, or by central banks having access to individual wallets. Absolute control determining their use is a dystopian vision of the future of currencies. It seems unlikely that the fullest ambitions for CBDCs revealed by Carstens will find support from commercial bankers, because it treads on their toes. This is important in the US’s political context because commercial banks bankroll congressmen and senators. One can envisage commercial banks supporting a CBDC as proposed by the Bank of England, because it is clearly a supplement to bank notes and not commercial bank credit. However, it is difficult to see how a CBDC-lite model will find much public favour, because current payment systems are so efficient that they are unlikely to be bettered by a CBDC. There is a risk that tinkering with a fiat monetary system by adopting CBDCs will end up eroding confidence in fiat currencies generally. This outcome may seem unlikely to the planners, but if the Russian Chinese partnership does move towards gold-backed trade settlements, for fiat currencies the retention of public confidence  in them should be their highest priority.  In any event, even without the Asian hegemons backing a new trade currency with gold, the western alliance’s fiat currencies face enormous challenges. The days when interest rates could be contained at, below, or marginally above the zero bound are over. Entire banking systems from central banks downwards are threatened with liquidity issues which can only be defrayed by yet more credit expansion, which ends up making things even worse. The whole CBDC story is a red herring. The plan outlined above for a new Asian trade settlement currency does not require a CBDC. It can be progressed within current banking systems. And as for the time taken to implement CBDCs in the western alliance’s fiat currencies, it is highly likely that they will have collapsed into worthlessness long before CBDCs can be adopted.  Tyler Durden Sat, 02/25/2023 - 15:30.....»»