Market Prognosis

A concise summary of the major macro events of the past 24 hours, and selected UK company-specific news.

March 20, 2023

Solvency crisis turns into a liquidity crisis

Macro & Overnight

While Credit Suisse equity holders received $3.5bn, its preferred AT1 bondholders were wiped out. These bondholders were supposed to rank ahead of equity holders, but they now stand to lose $17bn. This news has shaken global funding markets.

The rolling financial crisis is moving from a solvency problem to a liquidity problem. The Fed’s decision to support other central banks with daily swap line facilities is now unmistakable evidence. We can see the vector able to tip the US and the world into a full-blown recession.

It almost seems irrelevant what the Fed decides to do with interest rates this week. The market is saying cuts are coming later this year, potentially large ones.

Banks’ shares fell sharply in Asia overnight. Oil prices and bond yields have both fallen sharply. As investors take stock of this crisis, US Treasuries, precious metals and cryptocurrencies are the preferred short-term safe-havens.

 

Prognosticator 

This communication is provided for information purposes only, and is not a solicitation or inducement to buy, sell, subscribe, or underwrite securities or units. Investors should seek advice from an Independent Financial Adviser or regulated stockbroker before making any investment decisions. Progressive Equity Research Ltd (“PERL”) does not make investment recommendations.

Opinions contained in this communication represent those of PERL and/or our affiliates at the time of publication and PERL does not undertake to provide updates to any opinions or views expressed. PERL does not hold any positions in the securities mentioned in this communication, however, PERL’s directors, officers, employees, contractors and affiliates may hold a position,  and/or may perform services or solicit business from, any of the companies or related securities mentioned.

Any prices quoted in our research are as at the previous day’s close.