• News this morning of a major Credit Suisse shareholder ruling out a capital injection in the ailing Swiss bank not only rekindled a still lingering fire, it fanned it into an roaring blaze. Investors are running towards the exit, concerned about a potential collapse and the repercussions of this systemically important bank on the broader financial system. European stocks indices wipe out yesterday’s sharp, dead cat rebound. The Euro Stoxx 50 drops about 3%, closing in on the 4K support area. Losses on WS range between 1.4-1.8%. Commodities went in a tailspin with the likes of iron and oil losing 1 to >3%. Brent ($74.8/b) is testing the December 2022 support. Cash is hurled towards assets considered to be safe havens, including gold (+1.3% to $1928/oz). US Treasuries and Bunds are going through the roof, though volumes are lower than on Monday and yesterday. Yields in the US tumble 18.4-44.3 bps with the front outperforming. There’s about 125 bps of rate cuts priced in by the end of the year. German yields implode by 21.9-41.8 bps with the 2y yield now effectively being below the ECB’s 2.5% deposit rate. European swap yields are down 13.8-22.6 bps, sharply widening the spread over German yields from the tightest in a year to the widest levels since November 2022 in just a matter of days. Peripheral spreads with the German 10y yield soar with Italy (+10 bps) and Greece (+18 bps) underperforming. Corporate CDS since last Friday have jumped by 100 bps in the high-yield segment and about 25 bps for IG companies. Both are at their highest levels since early December. Unlike the previous days, the dollar stands to benefit from the outright risk-off. Concerns have now spread to the other side of the Atlantic as well, potentially turning an initial US issue into a broader/global (?) one. The trade-weighted index jumps from 103.73 to 104.85. EUR/USD erased all dollar-driven gains since the SVB story hit the wires last Friday. The pair fell from a 1.076 high to 1.0547 currently. The Japanese yen outperforms everything and everyone. USD/JPY tested the 135 barrier this morning but now trades at 132.87. EUR/JPY (140.00) loses almost 5 big figures. Sterling holds up pretty well given the circumstances. EUR/GBP tested 0.872 support before rebounding a bit to 0.875 currently. At the open this morning, the pair hit an intraday high of 0.883. The pound obviously is no match for the USD but damage could have been way bigger. GBP/USD slips to 1.205. Not that it got any market attention, but UK MinFin Hunt loosened the belts a bit and unveiled a yearly £22bn (on average over the next three years) of fiscal stimulus in his budget presentation. He used the room made available by a less-worse-than-feared economic situation as the OBR no longer forecasts a recession this year.
News & Views
• After a monthly decline in January (-1.1% M/M), inflation in Sweden again accelerated at a faster pace than expected. Headline CPI jumped 1.1% M/M bringing the overall price level to 12% Y/Y (11.7% Y/Y in January). The CPIF (CPI with a fixed mortgage interest rate), the preferred inflation gauge of the Riksbank (RB) rose 0.9% M/M and 9.4% Y/Y. CPIF ex energy showed an even bigger upward surprise (1.5% M/M to 9.3% Y/Y, was 8.7%). The uptick occurred despite a 0.4 ppts negative contribution from lower electricity prices. The numbers put further pressure on the RB to continue decisive monetary tightening at the April 26 meeting. In February, the Riksbank indicated to raise to policy rate to a cycle peak somewhere between 3.25% and 3.5%. It also signaled a further weakening of the krone is undesirable as it makes it more difficult to for the RB to sustainably return to the target. However, until now the RB engagement provided only limited support to the krone as the ECB also continued to tighten aggressively. EUR/SEK this morning gained modestly despite the global risk-off (currently EUR/SEK 11.20). Even so, this level of the krone probably stays well below what is needed to contribute to the RB’s efforts to tame inflation.
• According to Statistics Poland, consumer prices in February rose 1.2% M/M 18.4% Y/Y. Goods prices increased 20.2% and services prices 13.3%. In a monthly perspective, the biggest contribution came from higher food prices (0.44 ppts). The 1.2% M/M rise was faster than expected, but a downward revision of the January inflation brought the Y/Y measure close to expectations. At last week’s policy meeting, the National Bank of Poland kept the policy rate at 6.75% as it hopes that inflation will gradually cool. The NBP also would like to see a stronger zloty in line with the economic fundamentals. The initially reaction of the zloty to the release was modest, but the Polish currency later in the session outperformed the region, despite the broader risk-off sentiment (currently EUR/PLN 4.69).