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Is this what fear looks like?
After all, the Credit Suisse problem has been solved, with Swiss regulators pushing it into the arms of an unwilling UBS, which has agreed to pay $3.25 billion (nearly triple its reported initial low-ball offer) to acquire the troubled bank. UBS negotiated and has got significant support for the transaction, but Credit Suisse shareholders suffered severe losses and its AT-1 bondholders lost everything. Swiss regulators provided financial support to UBS while major central banks and regulators blessed the deal.
While the crisis at hand has been averted, the developed world is also rallying around its own. The US Fed joined central banks in Canada, England, Japan, Switzerland and along with the ECB has switched weekly auction of dollars to daily to improve liquidity.
Even then, Asian markets are mostly in the red on Monday morning, and India’s benchmark indices too were down by 1.4 percent around 1 pm. What is worrying investors, why do they think the worst is not behind us, and with the Fed meeting scheduled this week, what can we expect? (First Republic Bank is one more bank that seems to be in trouble, despite some measures taken). We have put together a packed edition to give you a comprehensive picture of the situation and what lies ahead.
On the Credit Suisse-UBS transaction: FT’s Lex column (free to read for Pro subscribers) writes, “The rock bottom price would give UBS some protection from unforeseen liabilities. This deal, transacted to a conventional timetable in normal financial conditions, would look like a good one for UBS”, but also, “This is a messy, ugly transaction that nobody really wants. It also appears necessary. But whether it would halt European bank runs is unknowable”. Do read to know more.
Tough monetary policy choices: Mohamed El-Erian has long been a harsh critic of the US Fed’s misreading of the ‘transitory inflation’ scenario and argued that it was falling behind the curve. He writes in today’s second FT selection (also free to read for Pro subscribers) “the Fed faces an intensified trilemma: how to simultaneously reduce inflation, maintain financial stability, and minimise the damage to growth and jobs”. He has identified two policy priorities, one short term and the other long term that could help address the problem. What are they? Read to know more.
On the Fed and what investors should do: Manas Chakravarty explains in three charts the root of the problems that are emerging out of the banking woodwork in developed markets. It leads to a question of whether this is the end of quantitative tightening. Anubhav Sahu writes that central banks don’t really see the current problems as a systemic risk and that liquidity coverage ratios for large banks are ample. The elevated inflationary regime still needs to be taken head on and that means central banks will remain on their path of restrictive policy in the near term. But this portends a high volatility regime for bonds and equities. What does this mean for investors? Read to know more.
And on, whether this is what fear looks like, Kotak Life’s Churchil Bhatt writes that when highly liquid markets seize up, it is ‘confidence’ that is broken. Read to know why he is saying this and what lies ahead for India.
Investing insights from our research team
Why do AMC stocks lack shine despite strong equity inflows in mutual funds?
Gujarat Gas: Improving macros to aid margins, outlook
What else are we reading?
Chart of the Day: Odisha grabs the steel output crown
IREDA listing plan — A chance to plug into triple benefits
The Eastern Window: Xi Jinping’s road to Moscow is deep and dark
Why the ripples from the SVB collapse have not reached India
Lessons from the Silicon Valley Bank bust
India must use trade remedial measures cautiously
ChatGPT can lie, but it’s only imitating humans
Technical Picks: Kalyan Jewellers, BEL, Turmeric, USD-INR, Aurobindo Pharma and Manappuram Finance (These are published every trading day before markets open and can be read on the app).
Ravi Ananthanarayanan
Moneycontrol Pro
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