JASPER’S MARKET SQUAWK 16-03-2023

Banking Sector Continues to Weigh on Risk Appetite

Euro cratered yesterday, along with the Swissy, following analysts’ downgrade of the European banking sector and increasing fears of plaguing banks in Europe in the wake of SVB’s, and subsequently Credit Suisse’s, collapse.

CHART: EURCHF

Key Factors for Today

• Credit Suisse bloodbath sends euro and swissy tumbling
• WTI to Dec ’21 lows, dented by risk reversal and inventories
• Dollar strength continues despite poor econ data
• Spring Budget reveals UK to avoid recession

EUR/CHF Pulls Off Impressive Reversal

Credit Suisse’s collapse and renewed fears of a banking meltdown sent EUR/CHF soaring 1.70% from the intraday lows of 0.97. CS’s largest stakeholder, the Saudi National Bank, announced it wouldn’t increase its stake in the bank, adding to Franc’s weakness, with the pair recording an impressive reversal into gains. Credit Suisse announced it would borrow CHF50B from the Swiss National Bank, offering some respite towards 0.9823 unless the bloodbath continues and the pair rises towards parity.

EUR/USD Records Biggest 1-Day Drop Since September,

Press reports continued to circulate that ECB would hike by 50bps amid calming markets, citing new ECB projections showing inflation still above the 2% target in 2024. However, many analysts have individually come forward to cut expectations for the ECB, saying a quarter-point hike is the most likely outcome. On top of the shift to the dollar, this might have partially impacted the EUR/USD, with the pair down 1.50% to $1.0576 and under continued pressure below $1.0650.

WTI Crashes 8% to Dec ’21 Lows

In addition to worries over the economic outlook, an unexpected build in DOE inventories of 1.6M bbl compared to expectations of no change pushed crude prices lower to a December ’21 low. Distillates saw a drawdown of 2.5M bbl as the country’s northeast was affected by a winter storm. WTI crashed some 8% below $66/bbl, the level that the White House said would trigger buying to replenish the SPR, before reducing some losses to $68/bbl. The commodity remains under pressure below $70/bbl.

Dollar Supported by Reserve Status

The consternation in the markets saw strong flows into the safe-haven dollar, which rose despite lower Treasury yields. Retail sales contracted by 0.4% monthly, and the March Empire Manufacturing figures to 24.6 were worse than expected. However, neither convinced investors to switch positions away from dollars. USD/JPY traded 1.50% on the session but managed to recoil to a 0.65% loss at 133.37 by the close. 134.00 remains major resistance.

UK Spring Budget Reveals No Recession Forecast

UK Chancellor Jeremy Hunt presented the Spring Budget yesterday, saying the country would avoid recession. The OBR raised the GDP forecast to -0.2% from -1.4% in the Autumn Budget, a stark revision. Cable was down 0.82% on Wednesday, impacted by the dollar’s status, with $1.20 back in focus so long prices stay under $1.21.

On The Docket

• Italian inflation
• Philly manufacturing
• Jobless claims
• ECB rate decision

Fx 1-Day Relative Performance (USD)

• Yen and franc are up by 0.40%
• Kiwi 0.36% lower
• Aussie and euro are up 0.33% and 0.26%
• Pound and loonie are up 0.13% and 0.08%
• Gold and silver are down 0.51% and 0.24%
• Crude and brent 0.65% and 0.75% higher
• Natural gas is up by 2.38%