Date: March 20, 2023
- Banks in focus as STI underwent volatile week.
- News of bailouts for US banks and Credit Suisse helped STI rise 6 points or 0.18% to 3,183.28.
- All eyes on US Fed next week
- Probability of no rate hike now at 41%
- Flight to safety sent bond yields plunging, though yield curve remained inverted
- Singapore banks closed lower but off their intraweek lows.
- Singapore’s NODX in Feb contracted for 5th consecutive month
A volatile but ultimately firm week for the STI
The local stock market underwent a volatile trading week with banks the main focus because of the turmoil caused by the collapse of Silicon Valley Bank (SVB) and Signature Bank (SB) in the US and concerns over Credit Suisse’s problems.
The outcome was that the Straits Times Index first fell to an intra-week low of 3,132 but news of bailouts for SVB, SB, Credit Suisse and the US’s troubled First Republic Bank helped shore up confidence, enabling the index to finish Friday at 3,183.28 for a net gain of about 6 points or 0.18% for the week.
What will the Fed do on Wednesday?
However, the main concern now is what the US Federal Reserve will do at its next Federal Open Markets Committee (FOMC) meeting which ends on Wednesday.
On the one hand, its chairman Jerome Powell less than 10 days ago reiterated the US central bank’s resolve to keep raising interest rates to bring down inflation.
At the time, and because of Mr Powell’s comments, in the federal funds futures markets the chance of a 50-basis points rate hike started to rise, with the probability of there being no rate hike firmly at zero.
Probability of no rate hike is now 41% and 59% that it will be 25 basis points
However, since Mr Powell spoke, the collapse of Silicon Valley Bank and Signature Bank and the turmoil in the financial markets brought on by the problems at Credit Suisse have now raised the possibility that there may not be any rate hike at all.
According to the CME FedWatch Tool, the probability on Friday of no hike has surged to 41%, with an 59% chance of only a 25-basis points hike.
Supporting the likelihood that the Fed will only raise rates by 25 points was the latest consumer price index (CPI) data for February, which was a 6% rise on an annual basis, down from 6.4% in January and in line with market expectations.
The ECB ignored market turmoil, raised rates by 50 basis points
Complicating the outlook is that notwithstanding the turmoil in financial markets, the European Central Bank (ECB) on Thursday raised its three policy rates by 50 basis points in its sixth consecutive rate hike and said future moves will depend on incoming data.
“The elevated level of uncertainty reinforces the importance of a data-dependent approach to the Governing Council’s policy rate decisions, which will be determined by its assessment of the inflation outlook,” the ECB said.
Temporary respite? Credit Suisse to borrow 50 billion francs
Credit Suisse dropped to all-time lows Wednesday after the chairman of its top shareholder, Saudi National Bank, ruled out investing any more into the Swiss bank in a Bloomberg interview. This news came one day after the bank released a report that had been delayed which described weakness in the firm’s financial controls.
The stock rebounded on Thursday after the Swiss central bank said it would lend Credit Suisse 50 billion Swiss francs. The Swiss National Bank and the Swiss Financial Market Supervisory Authority said in a statement Wednesday that Credit Suisse “meets the capital and liquidity requirements imposed on systemically important banks.”
However, on Friday, Credit Suisse’s shares closed 8% lower as fears re-emerged.
US banking fears eased after consortium stepped up – but only temporarily
Over in the US, worries of a contagion-led banking crisis have eased slightly after a government bailout of SVB and SB and after a consortium of banks including Bank of America, Citigroup, JPMorgan Chase, and others agreed on Thursday to make uninsured deposits totalling US$30 billion in beleaguered First Republic FRC Bank.
“The actions of America’s largest banks reflect their confidence in the country’s banking system. Together, we are deploying our financial strength and liquidity into the larger system, where it is needed the most,” the banks said in a joint statement on Thursday. “America’s larger banks stand united with all banks to support our economy and all of those around us.”
However, the rebound that this statement triggered proved only temporary, with fresh selling on Friday sending stocks lower.
US Treasury yields continue to slide on a flight to safety
The yield on the US 10-year Treasury fell from 3.57% on Thursday afternoon to 3.427% on Friday. The yield has been down for two consecutive weeks, though the yield curve remained inverted with the 2-year yield higher than the 10-year at 3.94%, versus the 4.13% it settled at on Thursday.
Singapore banks take a hit, MAS issued strong reassurances
DBS, UOB and OCBC came under pressure during the week but eventually managed to regain some lost ground.
DBS lost S$0.63 or 1.9% over the week at S$32.55, UOB fell S$0.14 or 0.48% to S$28.54 and OCBC’s loss was S$0.11 or 0.88% at S$12.26.
The Monetary Authority of Singapore (MAS) during the week said that Singapore’s banking system remains “sound and resilient amid heightened volatility in global financial markets’’ and “the Singapore Dollar money market and foreign exchange market continue to function well’’.
It added that “the Singapore banking system has insignificant exposures to these failed banks in the US. Banks in Singapore are well-capitalised and conduct regular stress tests against interest rate and other risks. Their liquidity positions are healthy, underpinned by a stable and diversified funding base. These factors will allow them to weather potential stresses from global financial developments’’.
Singapore’s NODX fell for 5th consecutive month
Singapore’s non-oil domestic exports in Feb fell 15.6% year-on-year, the fifth straight month of contraction.
Shipments of electronic products shrank 26.5% year-on-year following the 26.8% fall in January. Exports to China fell 11.3%, though this was an improvement over January’s 41.1% slump.
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