Daily Market Outlook, March 16, 2023

Banking Blowups & Bailouts… Europe’s Turn?

After the fallout in the US from the failure of SBV & Signature Bank, yesterday saw the European leg of the crisis develop as the Chairman of The Saudi Bank was adamant that there wouldn't be any further investment from them for Credit Suisse this led to the bank’s shares unravelling through the European and US trading sessions losing as much as 24%, however, the Swiss National Bank has stepped in overnight stating that they would provide whatever liquidity was required to support the bank. Asian equity markets pared losses and European futures are trading on the front foot into the open, however, caution is counselled as this was the same scenario we saw at the open Monday before markets sold off heavily as the bailout news was digested. Investors remain on tenterhooks as market volatility reverberates around global markets, this leaves the The European Central Bank (ECB) in a precarious position heading into its policy decision today at 1:15GMT followed by the press conference by ECB Chief Christine Lagarde. Until this week markets had been pricing a 50bps, which would increase the deposit rate to 3%, this move had been widely advertised by ECB members given the ongoing angst regarding inflationary pressures, which is expected to be confirmed in updated forecasts given today. Given recent market volatility and the potential impact it may have for the economy, markets have started to lean toward a 25bps move with some investment banks favouring the possibility of no move today, current pricing allocates a 20% probability to a 50bps move. President Lagarde’s press conference will be parsed for her views regarding the impact of the current market volatility on economic projections and how this may weigh on the rate path going forward.

Stateside the US data docket provides updates for weekly jobless claims, import prices, housing and the Philadelphia Fed manufacturing survey. As with the ECB the Fed also face a conundrum heading into their rate setting meeting next week, in his testimony on Capitol Hill Fed Chair Powell had indicated that the hiking pace for interest rates may be increased towards 50bps given the recent robust round of economic data, prior to the recent concerns regarding the banking systems stability this week’s US CPI data’s inflation stubbornness would likely have made the 50bps a lock, however, the market turbulence since late last week,has muddied the waters for next week’s policy update with rates markets leaning towards a 25bps move at best with many market watchers favouring no move.

FX Options For 10am New York Cut

EUR/USD: 1.0400 (EU1b), 1.0620 (EU837.2m), 1.2500 (EU812.8m)
USD/JPY: 133.00 ($1.1lb), 135.00 ($777.4m), 134.80 ($599.5m)
USD/CNY: 6.8000 ($600.3m), 7.1500 ($600m), 7.0183 ($500m)
AUD/USD: 0.6900 (AUD918.8m), 0.6800 (AUD640m), 0.7000 (AUD618.6m)
USD/CAD: 1.3815 ($821.7m), 1.3600 ($490.4m), 1.4000 ($314m)
USD/KRW: 1330.00 ($996.6m), 1295.00 ($400m), 1260.00 ($400m)
USD/MXN: 18.95 ($545.9m), 18.60 ($490.2m), 19.25 ($392m)
GBP/USD: 1.2150 (£499.2m)
USD/BRL: 5.2000 ($512.3m), 5.4060 ($403.5m), 5.4980 ($400.lm)
EUR/GBP: 0.8800 (EU828.6m), 0.9000 (EU361.1m), 0.8750 (EU350m)
NZD/USD: 0.5950 (NZD453.8m)
One-month expiry EUR/USD risk reversals EUR puts over calls – a new 2023 high.
EUR/USD One-month implied volatility spiked through Monday's 8.8 peak to new 2023 highs at 10.8.
USD/JPY One -month risk reversals JPY calls over puts. (RTRS)