Improving risk sentiment

Market movers today

Today's key data release will be the ZEW index from Germany. We expect though that the index does not yet fully reflect recent market turbulence.

From the US, we get existing home sales data.

ECB's Lagarde will be on the wires again today. In her remarks yesterday, she did not give any new signals but confirmed that the ECB is following market developments closely and remains ready to provide liquidity if necessary. However, interest rates remain their primary tool as inflation is projected to remain too high for too long.

The 60 second overview

Markets: Risk sentiment started very shaky yesterday on the back of the UBS' takeover of Credit Suisse but strongly recovered during the day. Equities in the US and Europe both closed higher. Concerns in the banking sector still lingers as shares of First Republic Bank fell 47% after another downgrade. 2-year US Treasury yield ended the day where it started around 4% but was down to 3.63% during the day, which underlines that volatility still persists. This morning, positive sentiment has spilled over to Asia where equity markets broadly are in green and equity futures point to a green opening in US and Europe.

Takeover of Credit Suisse: Yesterday marked the first day following the announcement of UBS' takeover of Credit Suisse, which saw the AT1s of the latter being wiped out. Unsurprisingly, the AT1 segment was under heavy pressure from the morning, though sentiment improved during the day. The same development was visible in iTraxx indices which opened the day sharply wider, but actually recovered so that Main ended the day 3bp tighter at 98bp, while Xover ended just 7bp wider at 501bp, the latter having peaked at 580bp during the morning.

FI: It was again a dramatic day in the global financial markets after Credit Suisse was taken over by UBS during the weekend. The markets were under pressure as holders of Credit Suisse AT1 debt took a full loss while there was still some value for the Credit Suisse equity holders. This was a very unusual restructuring of a bank and European authorities have been out stating that for European bank holders of AT1 debt will only take a loss after the equity holders.

Hence, initially there was a significant drop in yields and rates but later during the day the markets calmed down and the yield on 10Y German government bonds rose 2bp. Furthermore, the Schatz ASW-spread which was above 100bp in the morning rebounded and closed the day around 85bp. 10Y Treasury yields rose some 6bp, while 2Y yields closed up 15bp, but the intraday move was massive. 

FX: The start to the week in G10 FX market was relatively quiet despite the big gyrations in the equity, credit and fixed income market. SEK and GBP came out on top, while USD, CHF and NZD lost out. EUR/USD reversed a drop below 1.0650 and ended the day above 1.07.

Nordic macro

The Riksbank's Anna Breman will speak on the very timely topic "Monetary Policy in a troubled world". We would expect that she elaborates on the Riksbank's priorities when it comes to inflation vs banking worries and the risks of the current market turmoil from a Swedish perspective. So far, the Riksbank has seemingly downplayed the risks to the Swedish banking sector and latest Riksbank speeches and comments have been more focused on getting inflation down.