Equities report: SVB’s collapse puts global banking industry on red alert

Panic ensures across the banking industry after Silicon Valley Bank’s collapse last week and market now turns its attention towards Credit Suisse, since the absolute categorical denial for additional funding from its largest investor led its stock to plunge to all-time lows and sparked a worldwide trust and confidence crisis for banking institutions. In this report we aim to present the recent fundamental and economic news releases that impacted the US stock markets, look ahead at the upcoming events that could affect their performance and conclude with a technical analysis.

Credit Suisse’s plunge hurts the market’s psychology

Following the tumultuous events of last week where Silicon Valley Bank collapsed due to insufficient funds to meet depositors needs, analysts started to ponder; Who’s next? Credit Suisse has been under the spotlight over the past six months for all the wrong reasons. The bank recorded a massive loss in 2022 and it is undergoing a restructuring process which aims to lift the bank from its slump, re-emerging from the ashes anew. The market however had adopted a reluctant and cautious stance against the Swiss bank and its share price has been slowly but steadily shedding value week after week. As SVB failure sent shockwaves across the global banking sector, the pressure on the bank intensified. Yesterday, the Credit Suisse CEO Ulrich Koerner, attempted to calm the markets nerves during a Bloomberg interview and openly asked from investors to trust the process. He stated that the bank has been implementing its transformation plans and more time is needed for the appropriate results to surface. He added that following the SVB upheaval, the bank saw material inflows on Monday, which were apprehended as a positive sign according to the CEO and the statement somewhat cushioned the intraday fall.  Little did he know of what was to follow. Earlier today, Wednesday, Credit Suisse’s largest investor the Saudi National Bank, with a 9.88% ownership stake, delivered a devasting blow which pushed the stock over the edge, causing it to free fall into its all-time lows. SNB’s Chairman Ammar Al Khudairy, explicitly stated that they won’t be providing any additional capital aid to the distressed Credit Suisse due to regulatory and statutory reasons. The resolute denial from the biggest credit line of Credit Suisse, flashed the green light to the market to move in for the kill and sparked a confidence crisis for the entire European banking industry. Banks across the bloc got hammered today, with the majority of the European banking sector plunging in the reds after yesterday’s brief breather. BNP Paribas, Deutsche Bank, Société Générale, Commerzbank, UBS, and many other banking institutions continue to bleed profusely, and bulls appear reluctant to engage to halt the drop, at least for the time being. Similar moves but of lesser magnitude can be seen across the United States with names such as JPMorgan, Morgan Stanley, Goldman Sachs and others feeling the heat. Analysts now expect the Swiss government and regulators to jump in and address the situation, preventing mass panic from spreading across the entire banking industry. Response from the regulators is of outmost importance since the bank is a global institution with exposure in most developed economies and failure to contain the panic may very well harbor severe implications worldwide.

SVB’s fallout scatters money markets projections

Market consensus about the Fed’s hiking path forward radically changed since last week. Following Fed Chair Powell’s comments, the market shifted their outlooks reflecting the hawkish prospects of the Fed, once the door for a larger magnitude hike sprung open. As a result, we saw the market shifting their projections, bracing for 50 basis points hike in the March meeting. As soon as the SVB’s collapse headlines hit however, the market quickly downgraded their projections for the 50 basis points hike and opted for a 25 basis points hike scenario, reverting to pre-Powell speech outlooks. After the weekend and the Federal Reserve, FDIC and the Treasury department’s joint decision to step in and ensure that depositors would get back their money back, we saw a complete 180 degree turn from the market, dismissing the 25-basis points scenario all together and ended up pricing in that the Fed would stay on hold in the February meeting. Yesterday, the market was split equally between no hike and 25 basis points scenarios in anticipation of the inflation report and after the report they favored the scenario of 25bps. Earlier today, after Credit Suisse’s confidence crisis and the plunge of its share price to all time lows, worries for contagion echoed across the European continent and led money market analysts to once again consider the no hike scenario by the Fed. The underlying message from these observations is that the market has no clue on what’s to follow as we inch closer to the Fed meeting and further developments from the SVB case and Credit Suisse, alongside the results from crucial US related data may be needed for more accurate assessments.

Technical Analysis

#US30 4Hour Chart

Support: 31800 (S1), 31100 (S2), 30300 (S3)

Resistance: 32600 (R1), 33500 (R2), 34500 (R3)

Looking at #US30 4-hour chart we observe the index extending its fall between the descending channel’s bounds and is currently trading dangerously close to the 31800 (S1) support base. We hold a bearish outlook bias for the index given the probabilities for a potential spillover from Credit Suisse and supporting our case is the RSI indicator below our 4-hour chart that currently registers a reading of 37, highlighting the negative sentiment surrounding the Dow. Should the bears reign over, we may see the definitive break below the 31800 (R1) resistance level and the lower bound of the descending channel alongside the possible break below the 31100 (S2) support base. Under extreme scenario we may also see the price action heading lower, closer to the 30300 (S3) support range which was last visited during October of 2022. Should on the other hand, the bulls take the initiative, we may see the break above the 32600 (R1) resistance level, the break of the upper bound of the descending channel and the move near the 33500 (R2) resistance barrier.

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Disclaimer:
This information is not considered as investment advice or an investment recommendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced, or hyperlinked, in this communication.

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