The market bounces back to a quarter-point Fed hike next week
The ever-changing market for what the Federal Reserve will do with interest rates next week now indicates that a quarter percentage point move higher is likely.
Traders assigned a 74% probability of a rise of 0.25 percentage points, or 25 points, when the Federal Open Market Committee releases its decision on Wednesday, according to CME Group data just before 7:30 a.m. ET.
The Fed funds futures market has been very volatile in recent days, with expectations fluctuating between quarterly hike and no hike.
Although the market is now looking for a rise in March, it is not expecting much after that.
Futures implied a peak, or terminal, rate of 4.88% in May, and then that figure fell through the year to 3.97% in December, indicating a likelihood of rate cuts ahead.
What analysts are saying about Credit Suisse
Wall Street analysts were split on whether to buy in Credit Suisse after the bank announced it would borrow up to nearly $54 billion to secure liquidity.
JPMorgan’s Roberto Henriques reiterated an overweight rating on the bank, noting that he expects the “central bank bazooka” to reassure investors worried about liquidity issues and give Credit Suisse enough time to roll out a restructuring plan.
However, analysts at Bank of America and RBC Capital Markets were not as optimistic.
Check out our full story on CNBC Pro.
The Credit Suisse situation is not a Lehman-like event, JPMorgan traders say
Traders at JPMorgan broke down why they think Credit Suisse’s situation isn’t like Lehman Brothers during the financial crisis.
“There are some obvious differences,” they wrote. “(i) US and EU banks are well capitalized, so this is primarily a matter of confidence; (ii) the Fed/Treasury has an existing playbook and can put together a substantial response overnight. It should not surprised to see $25 billion BTFP increased and then lifted. (iii) derivatives exposure is substantially lower today than pre-GFC.”
Global markets were shaken on Wednesday after Credit Suisse’s biggest investor said it would not provide further assistance. Overnight, the bank said it would borrow up to about $54 billion from the Swiss central bank to shore up short-term liquidity.
— Fred Imbert, Michael Bloom
European markets open higher
European markets opened higher on Thursday as regional investors breathed a sigh of relief after the Swiss central bank said it would provide a liquidity backstop to the beleaguered bank Credit Suisse.
The pan-European Stoxx 600 index opened 1% higher. Most sectors and major bourses opened positively, with gains led by a rally in banking stocks, which rose 2.8%. Oil and gas and retail shares rose 1.6%.
Saudi National Bank says panic over Credit Suisse is unwarranted
The chairman of Credit Suisse’s largest shareholder, Central Bank of Saudi Arabiatold CNBC’s Hadley Gamble that the recent market turmoil in the banking sector is “isolated” and stemming from “a bit of panic.”
“If you look at how the whole banking sector has gone down, unfortunately a lot of people were just looking for excuses … it’s panic, a little panic,” Ammar Al Khudairy said on CNBC’s “Capital Connection.”
He added that Credit Suisse has not asked the Saudi National Bank for financial support.
“There have been no discussions with Credit Suisse about providing assistance,” he said. “I don’t know where the word ‘aid’ came from, there have been no discussions whatsoever since October,” he said.
His comments come after Credit Suisse notified it will borrow up to 50 billion Swiss francs ($53.68 billion) from the Swiss National Bank to bolster liquidity and investor confidence after the stock tumbled on Wednesday.
– Jihye Lee
Swiss franc gains in volatile trade after Credit Suisse announcement
The Swiss francs saw continued volatility following developments around Credit Suisse – and last strengthened 0.17% against the US dollar to par with earlier post-lender weakness notified to borrow nearly $54 billion from the Swiss National Bank.
The Japanese yen also saw further strength to trade at 132.86 against the dollar. The Korean won strengthened 0.13% to 1,311.24 against the US dollar.
– Jihye Lee
Credit Suisse says it will borrow up to about $54 billion from the Swiss central bank
Credit Suisse announced that it will borrow up to 50 billion Swiss francs ($53.69 billion) from the Swiss National Bank under a covered credit facility and a short-term liquidity facility.
The moves will “support Credit Suisse’s core businesses and clients as Credit Suisse takes the necessary steps to create a simpler and more focused bank built around client needs,” the company said in a message.
In addition, the bank is making a cash tender offer in relation to ten US dollar-denominated senior notes for an aggregate purchase price of up to $2.5 billion – as well as a separate offer for four euro-denominated senior notes for up to an aggregate of €500 million, the company said.
Read more here.
– Jihye Lee
First Republic Bank mulling options, including sale: Bloomberg
First Republic Bank is considering options to bolster liquidity including a sale of lender Bloomberg reportedwith reference to persons with knowledge of the matter.
The bank is expected to draw interest from its rivals and no decision has been made, the report said.
The bank’s shares were up 3.92% in after-hours trading in the US on Wednesday evening – after seeing a rise of more than 20% earlier this week together with regional banks.
‘Big Short’ Investor Steve Eisman Says If Fed Is Afraid To Raise Rates, Investors Should Be Cautious Too
Steve Eisman of “The Big Short” fame said that if the spreading banking crisis stops the Federal Reserve from raising interest rates next week, investors should be intrigued.
“Fifty basis points is off the table. So either they’re going to do 25 basis points or they’re going to do nothing,” Eisman said on CNBC’s “Quick money“Wednesday evening.
“If the Fed doesn’t raise rates … maybe it will be positive for a couple of hours or a couple of weeks,” he said. “But the Fed isn’t going to raise interest rates because it’s scared. Well, if the Fed is scared, you should be scared.”
CNBC Pro subscribers can read more about his analysis here.
JPMorgan says headwinds to credit could result in a GDP slowdown
JPMorgan analyst Michael Feroli believes the GDP figures could take a hit in the coming quarters as investors become concerned about the financial sector, particularly mid-sized banks.
“A very rough estimate is that slower loan growth at mid-sized banks could deduct a half to a full percentage point from the level of GDP over the next year or two,” Feroli wrote in a Wednesday note.
“We think this is broadly consistent with our view that monetary tightening will push the US into recession later this year. It’s not unusual for a Fed rate hike to cause stress in the financial system – it’s unusual when it doesn’t it,” Feroli added.
The firm expects the Federal Reserve to announce a 25 basis point rate hike, rather than a 50 basis point increase or pausing rate hikes altogether.
“We’re looking for a quarter-point hike. A pause now would send the wrong signal about the seriousness of the Fed’s inflation decision,” Feroli said.
“Relatedly, it would also send the wrong signal about ‘financial dominance,’ which is the idea that the central bank is hesitant to tighten, or quick to ease, because of concerns about financial stability.”
Stocks make the biggest moves after hours
Check out the companies making headlines around the clock.
Credit Suisse — Credit Suisse shares rose nearly 7% after a statement from the Swiss Financial Market Authority and the Swiss National Bank said the bank is currently well capitalized. The SNB added that it would provide additional liquidity if needed. The stock fell 13.9% in Wednesday’s trading session after Credit Suisse’s biggest investor, Saudi National Bank, said it could not provide the Swiss bank with any further financial support.
Adobe — The software company’s shares rose 4.6% after that first-quarter fiscal results topped Wall Street estimates. The company reported adjusted earnings of $3.80 per share and revenue of $4.66 billion. Analysts polled by Refinitiv had expected earnings of $3.68 per share and revenue of $4.62 billion.
Five below — Shares in the retailer fell more than 3% in extended trading, slipping on the company’s muted outlook for the first quarter. Five Below reported revenue that beat Wall Street expectations, according to Refinitiv, and earnings were in line with estimates.
CNBC Pro subscribers can find the full list here.
US stock futures were mixed on Wednesday night
US stock futures were mixed on Wednesday evening after investor fears of a widespread banking crisis led to a volatile trading session.
Dow Jones Industrial Average futures fell by 24 points, or 0.07%. S&P 500 futures was up just 0.03%, while Nasdaq 100 futures climbed 0.10%.