Indices: Australian ASX 200
Earlier in the week we felt there was an 80% chance that the Fed would pause from its hawkish path of rate hikes at this week’s meeting to allow calm to return to financial markets but on second thoughts in a poker-like bluff we believe Jerome Powell et al will indeed hike rates in an attempt to send a message to the market that’s its controlling both inflation and the US banking crisis – they are again walking along the gymnast’s beam!
March has already delivered some significant volatility through bond and equity markets with this morning set to be another interesting session, the SPI Futures were pointing to a -1.4% drop on the open but the more than $3bn purchase of Credit Suisse by UBS over the weekend will make today a far more complex call. The recent global banking issues have elevated recession fears as financial institutions are likely to rein in lending making it harder for businesses to borrow hence the economy slows down i.e. ultimately what central banks wanted but not how they wanted to achieve it.
The ASX200 tumbled another -1.5% on the penultimate day of a volatile week which has already seen the local index lose over 200 points as banking stocks came under intense selling following the 2 major failures in the US, SVB & Signature, and what looks like two near misses with First Republic Bank (FRC US) and Credit Suisse in Switzerland. After rallying strongly through January the “Big Four” Australian banks are now down an average of -5.4% year to date, well over -10% below their February highs.
US stocks experienced another tough session overnight as Credit Suisse (CSGN SW) plunged ever lower, the European investment bank closed down a scary -24% with the Swiss Government now looking at options to stabilise the bank – ironically economists were focusing on consumers and mortgage holders being pressured by rate hikes over the last 12 months but it has been the banks that appear to have suffered the most since central banks relentlessly marched down their hawkish path.
