Higher risk assets sold amid widening banking fears
- Credit Suisse sold to UBS: An “emergency rescue” is an attempt to restore confidence.
- The Fed boosts the flow of USD: The credit line of USD will now be every day, rather than once per week.
- JPY is strong: The main safe haven currency of major forex is outperforming.
- Equities continue to fall: The selling pressure continues on European indices whilst US futures are c. -1% lower.
- Gold hits $2000, oil accelerating lower: Risk appetite is negative on commodities.
Credit Suisse sold for a knockdown price
Credit Suisse is one of the world’s 30 most important banks, so its viability is important for confidence in the banking system.
Swiss rival, UBS, agreed to buy Credit Suisse for $3.15bn on Sunday, well below the c. $8bn valuation at the close of business on Friday.
That is a considerable haircut.
The deal was backed by the Swiss National Bank and other major central banks have also come out with encouraging words about the deal.
However, there are two ways that markets can look at this:
- It prevents a hugely important bank from going bust, thus sustaining the global banking system from the risk of contagion.
- If this has happened to Credit Suisse, what else could be happening at other banks?
The Fed ensures the plumbing for USD liquidity
Major central banks have also moved quickly to shore up the global financial system.
The Federal Reserve will provide daily liquidity “swap line” for banks to access USD funding.
Effectively, this is to ensure that the plumbing of the global financial system does not become clogged.
It is a measure introduced in extreme scenarios, that was also adopted during the 2008 financial crisis and also the pandemic.
However, this is just another action that adds to the sense that there is a considerable concern for the banking crisis that is growing.
Safety first as higher-risk assets are being sold
There is a decisive reaction in major markets today. Safe haven assets are performing well whilst higher risk assets are being sold.
Safe haven assets are doing well:
- The Japanese yen is the classic safe haven amongst major forex. The JPY is outperforming today.
- Furthermore, gold is always seen as an asset to perform well during times of financial crisis. Gold has jumped again this morning and is at a 12-month high, above $2000.
- There is also support starting to come in for the USD as the European session develops.
Higher risk assets are at the other end of the spectrum for performance:
- Oil, an asset with close links to the global economy, is again falling hard. Brent Crude oil is at its lowest level since December 2021.
- Equities are also considered relatively high-risk assets. The FTSE and DAX are over -1.5% lower today.
Gold hits $2000, but oil and indices decline
There have been some considerable moves this morning. We have had to show weekly charts for gold and oil as the moves have been through key levels.
Has soared in the past few sessions.
The market burst through $1960 key resistance on Friday and has hit levels above $2000 this morning.
The next resistance is not until $2070 (reaction to the Ukraine war) and $2075 (all-time high amid the pandemic).
The old resistance at $1960 is now a basis of support.
Brent Crude oil (UKOUSD)
Brent Crude broke below the $75.55 support of the December 2022 low on Friday.
The move has continued lower today.
It is now eyeing the next support between $65.00/$66.35
Medium-term resistance is around the old support of $75.55
Support and resistance levels for Forex, Commodities, and Futures/Indices
|Brent Crude Oil
|S&P 500 futures
|FTSE 100 Index
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