What will happen to Credit Suisse?

We spent the weekend talking about whether Credit Suisse will finally go bust or not. And the bank’s executives spent their weekend trying to reassure investors that the bank has a strong capital position and liquidity to avoid a fall.  

But the share price is down below 4 francs a share, and the credit default swaps are going through the roof. The 5-year CDS for Credit Suisse spiked to 250 from around 60 at the start of the year. It means that the market is aggressively pricing a default for one of the biggest Swiss banks.  

Is it possible? Yes, it is possible, but it is highly unlikely. Because Credit Suisse is certainly ‘too big to fail’.  

What will likely happen is, either there is a miracle this Christmas and the bank’s new CEO strengthens the back of the bank in 100 days as he promised, and the bank survives and thrives until the next scandal.  

Or the bank will become a nice takeover target, and be eaten by another bank. 

Or it will be saved by the Swiss government.  

Another bad quarter 

The third quarter ends with losses, even though we thought that the summer rally could’ve given something. But no.  

The S&P500 finished the 3rd quarter having slipped to the lowest levels this year. The same is true for Nasdaq and the Dow Jones. $24 trillion have been wiped out of the stocks so far this year.  

And the last quarter begins with aggressive rate hike expectations from the Federal Reserve (Fed), but also from the European Central Bank (ECB) and the Bank of England (BoE). 

Released last Friday, the core PCE index in the US advanced to 4.9% from 4.7%, while the expectation was a steady number around 4.7%. And the Eurozone printed its very first double-digit inflation for September. Inflation in the Eurozone finally hit the psychological mark of 10%.  

The ECB is now expected to announce two 75bp hikes before the end of this year. The show could slow down with a 50bp hike in February and 25bp hike in March.  

The euro? Well, it looks like it mostly needs the help of the Fed doves rather than the ECB hawks to clear the 1 resistance to the upside again. 

Strong dollar will be a trouble

Nike has been the latest company warning investors of falling profits due to mountains of stockpiles that they inherited from the pandemic times – and which brought the company to make nice price discounts -, and the strong dollar.  

Not only that Nike sells its huge inventories at discounted price, but when it brings profits back home, and convert them to the US dollars, the picture is even uglier.  

And we know that the strong dollar is going to be a headache for more than one US company. Nike tanked almost 13% on Friday, and it has been a warning of an unpleasant earnings season ahead, for the US companies. 

We hope the US jobs data is not too strong

Investors hope that this week’s jobs data doesn’t reveal strong job additions, and solid salary growth in the US.