The markets have been all over the place since the closure of SVB last week, which was joined by 5 other small banks as the week went on. The latest issue on the cards is Credit Suisse who are having problems, the issue with this is that Credit Suisse is very much one of the “Too big to fail” banks, and if this bank fails we do end up in a very 2008-esque situation.
Most of the liquidity that was given to the bank last week was in foreign exchange- so on this basis, I do expect to see some volatility on the FX markets- the latest news is that UBS is lining up to buy Credit Suisse in hope of averting a major crisis- we should have confirmation on this by market open on Monday so apologies if you are reading this and the deal is already done!
Aside from issues in the banking sector- we do have a few major events this week that will contribute to volatility in the markets- on Wednesday we have the FOMC rate decision, right now it looks as if the Fed will go for a 25 bps hike, nothing too aggressive considering issues currently but inflation is still high and the Fed is mandated to get it to 2% as soon as possible so my expectation is 25bps this week and then maybe a pause from the Fed for a little while.
The Bank of England will also be meeting this week on Thursday and I am also expecting 25bps from them- for exactly the same reasons- inflation is still high but as employment is still good, their view is that the UK public can afford it and they will do a small hike before they look to pause. The SNB will also have their meeting this week which will be interesting considering the amount of liquidity they have given to both Credit Suisse and UBS over the last week.
In regards to data releases, we have UK CPI on Tuesday which is expected to stay around 5.8%, and UK retail sales on Friday which is expected to come in at -4.7%. This week has all of the ingredients for a very volatile week- if you have an upcoming transaction and are not sure how to navigate the markets please don’t hesitate to contact us.