EUROPEAN EQUITY UPDATE: Credit Suisse soars amid SNB liquidity support

Analysis details (09:15)

• European equities trade on the front foot (Eurostoxx +1.1%) in an attempted bounce back from yesterday’s losses which saw the Eurostoxx 50 close lower by some 3.5%.


• Positivity has stemmed from news that Credit Suisse (+20.0%) has secured liquidity from the Swiss National Bank and intends to borrow up to CHF 50bln under the covered loan facility and short-term liquidity facility. Furthermore, CS International is to repurchase certain OpCo senior debt securities for cash of up to about CHF 3bln, while the bank noted that the additional liquidity would support its core businesses and clients.


• In terms of the contagion from CS, a lot is currently unknown, however, reporting via Bloomberg has suggested that BNP Paribas (+1.5%) has been lowering its exposure to the Co. In terms of the next steps for Credit Suisse themselves, JP Morgan views a takeover as the most likely outcome with UBS the most natural suitor.


• These latest updates have provided the European banking sector with some much-needed reprieve with the Stoxx 600 Banking Index up 1.5%, albeit there is still some way to go until yesterday’s losses of around 6% are pared.


• Today is another risk-packed session with the upcoming ECB decision subject to great uncertainty. Up until this week, given the comms. at the February meeting and the subsequent lack of a walk-back from officials at the Bank, the ECB was unanimously expected to hike its three key rates by 50bps a piece. However, the recent turmoil in the US banking sector and contagion fears surrounding Credit Suisse have cast the decision to move by 50bps into doubt with market pricing now at 47% for 50bps and 53% for a smaller 25bps hike. As outlined by ING, in theory, a response where it delivers the 50bp hike to fight still-rising core inflation, whilst providing a comfort blanket such as a promise to provide liquidity to banks under generous conditions could be one course of action. That said, the ECB cannot completely ignore the impact higher rates would have on confidence. ING suggests the prudent course of action would be to pause and resume hikes later, but the ECB might judge that its already battered inflation-fighting credibility cannot afford it. Either way, today’s decision from the ECB is likely to provide a great source of price action for the market.


• Equity sectors in Europe are mostly firmer with Banking names leading peers, followed by gains in Insurance and Energy stocks, the latter of which were hit by around 7% yesterday. To the downside, Real Estate is the standout laggard with losses also noted in the Basic Resource and Health Care sector.


• Across the pond, US equity futures are trading slightly better than flat, although shares in US banks are rebounding in pre-market trade following better sentiment around the sector in Europe. There were also reports that US banks had been cutting exposure to the Swiss bank. That should leave US investors focussing more domestically on its own soft spots in its banking sector, namely the regional banks. First Republic Bank (FRB) is reportedly exploring its options, and is also mulling options for shoring up liquidity, which could draw interest from larger rivals, Bloomberg said. And with regards to SVB Financial Group (SIVB), reports say the government seems to be favouring a sale to another bank, The Information said, which essentially rules-out the private equity firms and venture capitalists that had been exploring making a bid; FBN reports that the chances are still low that JPMorgan (JPM), Citigroup (C), Bank of America (BAC) or Wells Fargo (WFC) will buy SVB Financial.


• Meanwhile, weekly US jobs data is on the slate, as well as the Philly Fed monthly data, Import/Export prices, and some housing stats, which will continue to help shape expectations ahead of next week’s FOMC.

16 Mar 2023 - 09:15- EquitiesResearch Sheet- Source: Newsquawk