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US and European markets dropped steeply on Friday as investors remained shaken by the fallout of bank collapses in the US and the issues at Credit Suisse ahead of a pivotal week in Central Bank policy meetings.
Over weekend a SNB brokered deal a deal was announced that UBS will buy rival Credit Suisse for 3 billion Francs and agreed to assume up to 5 billion in losses in a deal that would see CS shareholders receive 1 UBS share for every 22.48 Credit Suisse shares they own in a bid to restore confidence in the banking sector, whether that soothes investors or not will be the big question at Mondays opening.
With the background of banking woes, this week’s Central Bank decisions have certainly become more interesting, up until a week ago the market was pricing in a 50 bp hike from the Federal Reserve, the odds now have around 60% for a 25bp hike, 40% for a pause, in my view it is likely the Fed will go for a 25 and moderate their language in the statement somewhat.
Next we’ll have the Bank of England, who’s decision is now on a knife edge with the market split on a 25bp hike or a pause. Since the last decision there has been encouraging data with wage growth finally showing signs of having peaked and recent communication indicates that the bar for pausing is much lower at the BoE than at the ECB or the Fed. it likely will come down to whether stability in financial markets returns before Thursday. Either way, expect the committee to remain heavily divided and some volatility in the GBP.
The SNB is last cab off the rank, inflation continued to rise and exceed expectations in Switzerland, reaching 3.4% in February, with the SNB well behind it’s peers in the rate hiking cycle conditions 50 basis point rate hike at the March meeting A fortnight ago, this was pretty much a done deal, but against a backdrop of Credit Suisse woes this has clearly reduced the chances this will happen, with a 25bp hike or even a pause possible.
A very busy and likely volatile week ahead in all markets.
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