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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.
The local market saw a bit of a relief rally today as concerns over the collapse of SVIB eased. Tech was the main winner of the bunch, but a strong day from market heavyweights financials and materials supported the index. Energy closed marginally lower as oil hit a 3-month low overnight before rebounding somewhat in Asian trade today.
This time last week the market was abuzz with the previous day’s 10th consecutive interest rate hike by the RBA which in the process took the Australian Official Cash Rate to 3.6%. This morning that’s a distant memory as analysts apply stress tests to the embattled US & Global Banking Sector, the former has already fallen -39% from its January 2022 high – this week we have already seen well know Zurich based merchant bank Credit Suisse (CSGN SW) plumb a fresh all-time low showing it’s not just the vulnerable US regionals that are catching sellers attention.
Risk assets continued their sell off today with broad-based weakness seen across the ASX. The index fell below the psychological 7000 level for the first time since January 4, though it showed some fight to close marginally above that level in the end. Energy felt the brunt of the pain today as the global growth concerns were caught up in the bank contagion fears.
We are adding to our banking exposure into weakness.
Through 2023 MM has been pointing out how equities were ignoring rising bond yields i.e. the previous 4 times we saw local 3-year yields above 3.5% the ASX200 was under 7000. However, ironically this month has seen the local index plunge towards 7000 as yields finally turn lower following the collapse of SVB – a great example of what drives markets transitioning over time.
The jitters caused by the collapse of Silicon Valley Bank caused a stir in the local market today, even after it was announced that depositors with the troubled bank would have access to their funds in full from Monday thanks to the US Treasury, the Fed and the Federal Deposit Insurance Corp (FDIC) that is currently managing the bank’s assets.
After numerous months of hanging on every word/innuendo from the Fed, RBA, BOE, et al we have a new gorilla in the room i.e. the collapse of Silicon Valley Bank (SIVB US), the 2nd largest bank to collapse in the US history. The wheels started to fall off last Wednesday when the company surprised the market by announcing it needed to raise $US2.2bn to shore up its balance sheet, the rest is already history as we witnessed a hysteria-induced run on the bank largely blamed on Venture Capitalists, customers withdrew a staggering $US42bn by the close of business on Thursday.
The ASX200 plunged -166 points/2.28% on Friday resulting in a -1.9% decline for the week, not too bad considering the likes of BHP Group (BHP), RIO Tinto (RIO), and CSL Ltd (CSL) all traded ex-dividend but it certainly felt far worse at 4 pm yesterday afternoon. This week’s issue wasn’t the macroeconomic picture that’s plagued equities all year but another negative “Black Swan” shock from crypto land as silicon valley bank SVB Financial (SIVB US) struggles to remain in business – we’ve even heard suggestions of a US bailout from Walls Street legend Bill Ackman. Whatever the ultimate result it confirms our opinion that Bitcoin et al is not an investment-grade option until further notice.
