Credit Suisse merger terms rattles debt markets

Notes/Observations

- Banking sector remain in focus in particular the value of additional tier 1 bonds issued by lenders.

- UBS to buy Credit Suisse; SNB offered UBS a CHF100B liquidity line and provided a loss guarantee of up to CHF9B.

- Credit Suisse will write down CHF16B of additional Tier 1 debt to zero on orders of Swiss Regulator as part of merger deal.

- Most economists think the Fed will carry on raising rates and hold them >5.5% despite fears about bank stability.

- Spot gold retested the $2,000/oz mark (1st time in 1 year).

Asia

- China PBoC Monthly Loan Prime Setting Operation left the 1-year and 5-year LPR rates unchanged at expected.

- BOJ March Meeting Summary of Opinions reiterated stance that must be patient and maintain monetary easing until price target was achieved. Reiterated view that domestic consumer inflation expected to slow below 2% in latter half of this year. No need to change Joint Statement between govt and central bank.

- RBA Asst Gov Kent noted that it would respond as needed to bring inflation back to target. Would take account of financial conditions in deciding on rates.

Taiwan

- Former Taiwan Pres Ma Ying-Jeou to visit China on Monday, Mar 27th - Taiwan press (First visit by former or current leader since 1949).

Ukraine conflict

- Russia President Putin made a surprise visit to Mariupol on Sunday in an apparent show of defiance.

Europe

- UBS agreed to buy Credit Suisse for CHF3.0B to lay the foundations for greater stability (Values Company at CHF0.76/shr); Credit Suisse wrote down its Additional Tier 1 bonds to zero as part of its takeover.

- ECB's Holzmann (Austria, hawk) stated that was expecting a few more rate hikes with the extent of further hikes would be data-dependent. Believed terminal rate to be above 4.00%.

- ECB's Rehn (Finland): ECB to take needed action to ensure price and financial stability; EU inflation remained too fast and not easing enough.

- ECB's Wunsch (Belgium) stated that ECB needed to raise rates and had a long way to go if its baseline inflation forecast materialized.

Americas

- Signature Bank’s deposits and some of its loans will be taken over by a unit of New York Community Bancorp (**Note: FDIC received equity appreciation rights).

- US Fed, ECB, BOE, BOC, BOJ and SNB announced coordinated action to enhance liquidity via US$ swap lines. Agreed to increase the frequency of 7-day maturity operations from weekly to daily.

- Former Pres Trump was said to be expecting 'arrest' on Mar 21st, called for protests.

- S&P cut First Republic’s rating 3 notches to B+ and warned of a further possible downgrade.

- Moody’s cut Downgrades First Republic’s rating to B2 from BAA, rating remains under review for downgrade.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.90% at 432.36, FTSE -1.01% at 7,261.42, DAX -0.84% at 14,644.75, CAC-40 -0.52% at 6,889.66, IBEX-35 -0.90% at 8,640.71, FTSE MIB -1.04% at 25,229.00, SMI -1.53% at 10,451.30, S&P 500 Futures -0.63%].

Market focal points/key themes: European indices open lower across the board and remained in the red through the early part of the session; better performing sectors include consumer discretionary and utilities; sectors leading the way lower include financials and energy; banking subsector dragged by Credit Suisse news among other events affecting banking sector; oil & gas subsector under pressure with Brent prices slightly above $70/bbl; earnings expected in the upcoming US session include Foot Locker.

Equities

- Consumer discretionary: Orpea [ORP.FR] -5.0% (agreement with banking partners).

- Energy: TotalEnergies [TTE.FR] -1.5% (oil prices plunge; no-confidence votes in France).

- Financials: Credit Suisse [CSGN.CH] -63.5%, UBS Group [UBS.CH] -13.5% (UBS agrees to acquire Credit Suisse for ~$3B), HSBC [HSBA.UK] -4.0%, Deutsche Bank [DBK.DE] -9.5%, Commerzbank [CBK.DE] -5.5%, BNP Paribas [BNP.FR] -5.5% (Fed, ECB, BoE, BoC and BoJ have agreed to increase the frequency of 7-day maturity operations of the the standing US$ liquidity swap line from weekly to daily for the next six week until end of Apr 2023), London Stock Exchange [LSEG.UK] +0.5% (buyback tranche).

- Healthcare: Getinge [GETIB.SE] -2.5% (recalls some products), Roche [ROG.CH] +0.5% (trial data).

- Industrials: Volkswagen [VOW3.DE] -1.5% (Russia court freezes all Volkswagen assets in Russia).

Speakers

- Bank of France (BdF) Quarterly Economic Outlook cut its 2023 inflation forecast from 6.0% to 5.4% while raising the underlying inflation from 4.0% to 4.3%. Raised 2023 GDP forecast from 0.3% to 0.6% and set the 2024 GDP growth at 1.2%.

- ECB's Villeroy (France) stated that it must be extremely vigilant on inflation and could not allow inflation to settle in. French inflation to ease but remained too high.

- ECB's Kazaks (Slovenia) stated that ECB was not done on rate hikes if baseline held up> He did note that was nearing the point where there's risk of hiking too much bit believed it was easier to repair hiking too much than too little.

- German banking regulator BaFin stated that the domestic financial system continued to be stable and robust.

Currencies/fixed income

- Session began with safe-haven flows rebounding in the wake of the UBS-CS merger. Major European bond yield declined by double digits with the particular the value of additional tier 1 bonds issued by lenders being the main factor. Dealers noted that the riskiest bonds of European lenders were plunging after holders of Credit Suisse Group AG’s contingent convertible securities suffered a historic loss as part of its takeover by UBS.

- Fed rate decision on Wednesday added an additional layer of uncertainty while global authorities moved to stem contagion from a simmering banking crisis.

- EUR/USD drifted lower to test 1.0645. Various ECB members continued to stress that inflation remained too high.

- USD/JPY saw the yen currency being aided by safe-haven flows. Lower US bond yields added to the attraction. Pair below 131 by mid-session.

Economic data

- (DE) Germany Feb PPI M/M: -0.3% v -1.4%e; Y/Y: 15.8% v 14.5%e.

- (TW) Taiwan Feb Export Orders Y/Y: -18.3$ v -17.5%e.

- (CH) Swiss weekly Total Sight Deposits (CHF): 515.1B v 510.8B prior; Domestic Sight Deposits: 499.9B v 496.5B prior.

- (PL) Poland Feb PPI M/M: -0.4% v +0.4%e; Y/Y: 18.4% v 17.7%e.

- (PL) Poland Feb Sold Industrial Output M/M: 0.4% v 0.9%e; Y/Y: -1.2%e% v +0.8%e.

- (PL) Poland Feb Employment M/M: -0.1% v 0.0%e; Y/Y: 0.8% v 1.0%e.

- (PL) Poland Feb Average Gross Wages M/M: 2.6% v 1.1%e; Y/Y: 13.6% v 11.9%e.

Fixed income issuance

- None seen.

Looking ahead

- (RU) China President Xi begins 3-day visit to Russia.

- (DE) German Bundesbank Monthly Report.

- 06:00 (EU) Euro Zone Jan Trade Balance: No est v -€18.1B prior; Trade Balance NSA (unadj): No est v -€8.8B prior.

- 06:00 (EU) Daily Euribor Fixing.

- 06:00 (SI) Slovakia Debt Agency (Ardal) to sell Bonds.

- 06:25 (EU) Daily ECB Liquidity Stats.

- 06:30 ((DE) Germany to sell €5.0B in 12-month BuBills.

- 06:30 (NL) Netherlands Debt Agency (DSTA) to sell €3.0-4.0B in 3-month and 6-month Bills.

- 07:00 (BE) Belgium Debt Agency (BDA) to sell €2.9-3.9B in 2027, 2033 and 2039 OLO Bonds.

- 07:00 (EU) European Union to sell €4.0B in 2027 and 2032 NGEU bonds.

- 07:00 (IL) Israel to sell combined ILS1.3B in 2025, 2026, 2028, 2030, 2032 and 2051 bonds.

- 07:00 (RO) Romania to sell combined RON800M in 2024 and 2030 bonds.

- 07:25 (BR) Brazil Central Bank Weekly Economists Survey.

- 07:30 (CL) Chile Q4 GDP Q/Q: +0.6%e v -1.2% prior; Y/Y:-1.6%e v +0.3% prior.

- 07:30 (CL) Chile Q4 Current Account Balance: -$2.7Be v -$9.4B prior.

- 07:55 (US) Daily Libor Fixing.

- 09:00 (UK) Daily Baltic Dry Bulk Index.

- 10:00 (EU) ECB chief Lagarde.

- 10:00 (FR) France Debt Agency (AFT) to sell €4.8-6.0B in 3-month, 6-month and 12-month bills.

- 10:45 (UK) BOE Gilt sale operation.

- 11:30 (US) Treasury to sell 13-Week and 26-Week Bills.

- 12:00 (CA) Canada to sell 5 Year Bonds.

- 17:00 (KR) South Korea Feb PPI Y/Y: No est v 5.1% prior.

- 17:45 (NZ) New Zealand Feb Trade Balance (NZ$): No est v -1.95B prior; Exports: No est v 5.5B prior; Imports: No est v 7.4B prior.

- 20:00 (KR) South Korea Mar 1-20th Day Exports Y/Y: No est v -2.3% prior; Imports Y/Y: No est v 9.3% prior.

- 20:30 (AU) Reserve Bank of Australia (RBA) Mar Minutes.

- 23:00 (TH) Thailand Central Bank to sell THB60B in 3-month bills.