SNB rides to the rescue with emergency loan for Credit Suisse
Panic has gripped global markets as investors lose confidence in Credit Suisse, prompting a rescue by the Swiss National Bank.
Panic gripped global financial markets as investors lost confidence in Credit Suisse, prompting the Swiss National Bank to ride to the rescue with a hastily-arranged loan for the troubled lender.
Three days after the Federal Reserve was forced to shore up US banks with a generous new loan facility after the collapse of three regional lenders including Silicon Valley Bank, the SNB stepped in with a covered loan and short-term liquidity facility for Credit Suisse worth over CHF50bn ($80bn).
The announcement around midday Australian time on Thursday – just hours after the Swiss central bank said it would provide liquidity support “if necessary” – came after Credit Suisse’s share price dived 24 per cent, sparking a renewed chaos in global markets as investors shunned risky and economically sensitive assets and flocked to government bonds.
The Brent crude oil price dived as much as 7.4 per cent to a three-month low of $US71.67 before rebounding above $US74 a barrel. Gold futures rose as much as 1.6 per cent to a six-week high of $US1942.50, even as the US dollar index rose 1 per cent on Wednesday.
The US 10-year Treasury bond yield dropped 10 basis points to 3.49 per cent and the 2-year yield plunged 33 basis points to 2.92 per cent as equivalent short-term bond yields in France and Germany plunged 50 basis points. Australia’s cyclically overweight share market was pummelled.
The S&P/ASX 200 dived to a 10-week low of 6907 points before closing down 1.5 per cent at 6965, with large, highly-liquid cyclical stocks like BHP in the firing line.
BHP shares fell 4.8 per cent to a four-month low of $43.39.
Woodside Energy was another large stock casualty, diving 4.8 per cent to a six-month low of $31.09.
Australian banks were mixed, with CBA shares flat and ANZ Bank down 2.5 per cent.
The sell-off in Australian shares came despite a large seasonal flow of dividends to shareholders.
“The market remains very nervous as banking contagion concerns continue,” said Bell Potter’s sales and trading head, Richard Coppleson.
But the resources sector was “oversold” and there was a record amount of cash on the sidelines.
Credit Suisse shares had been under pressure for some time and popped back onto the radar after the demise of SVB Bank and a review which found “material weakness” in Credit Suisse’s reporting.
Wednesday’s sudden drop came as the chair of its major shareholder Saudi National Bank said in an interview his bank would “absolutely not” increase its 9.9 per cent stake “for many reasons.”
The ensuing risk aversion wiped 3.5 per cent off the Euro Stoxx 50 index and put US banks back up against the ropes with the KBW Bank index down 4 per cent even after the Fed’s loan support.
All eyes were on the European Central Bank as it met Thursday to decide on interest rates.
A 50 basis point hike was until recently expected, but the swaps market dialled its expectation back to a 29 basis point hike. The ECB was also expected to try and bolster confidence in European banks.
ACY Securities chief economist Clifford Bennet said the ECB faced “an extremely challenging” decision. “If they keep rates steady for the moment, it could cause investors to panic further,” he said. “If they raise rates again immediately after this Credit Suisse crisis, they could be seen as reckless and that such a move may be too much for some other banks.”
“The ECB will most likely seek to reassure markets that it sees no issues of liquidity with the major banks, that they remain sound, and can therefore proceed with another 50-point rate cut to fight inflation … a total pause (in ECB rate hikes) cannot be entirely ruled out.”
While predicted that the extreme volatility of recent days would subside to some extent, Mr Bennett said some “skittishness” will remain for weeks, leading the Fed to halt its rate hikes next week.
“The current banking sector could hardly be felt by the Fed to be fully resolved by next week.”
“Therefore, with growing evidence that the start of the year was indeed a mere moment of economic stability and with a full-blown banking crisis under way, the Fed is likely to pause.
He said that having put together a “revolutionary state intervention rescue package” for the US banking sector, the Fed will be “well aware that there is actual systemic risk” and it was “unlikely to simply step over the carcass of SVB and act like it’s business as usual.”
It came as Australia’s February employment data were comprehensively better than economists expected, highlighting the inflationary challenge for the RBA from a tight jobs market.
But he said the RBA had already assumed a rebound in jobs, while still flagging the prospect of a pause in rate hikes.
“Global developments since the March meeting ticked the final box for a period of assessment,” said JP Morgan Australia chief economist Ben Jarman.
“April or May had looked like a close call, and we moved to a pause in April before a final hike in May; near-term cuts look unlikely unless global developments turn much more acute.”
However, Australian interest rate futures were more than fully pricing in an RBA rate cut by July.
The household bill that’s worrying us the most
Official inflation is falling, but consumers are not noticing relief in one key expense as they adjust their spending patterns.
BHP lifeline as nickel smelter shutdown culls WA mining jobs
BHP has offered new jobs to about 800 workers affected by the shutdown of its nickel operations but hundreds have chosen redundancy amid a major commodity downturn.