S&P 500 lower on bank stocks, UBS set to buy Credit Suisse, gold soars, ASX 200 set to tumble

ASX 200 futures are trading 98 points lower, down -1.42% as of 8:20 am AEDT.

Major US benchmarks fall as banks extend declines, UBS to take over Credit Suisse for US$3.2 billion in stock, bond yields tumble to levels not seen since September 2022, tightening US financial conditions and lending standards correspond to approximately 1.5% in rate hikes, oil markets set to re-enter deficit in the second half of 2023 and the option market hints that something big is brewing.

Let's dive in.

S&P 500 SESSION CHART

MARKETS

• S&P 500 finishes the week up 1.4% but financials beginning to slump again
• Nasdaq on track for its best week in four months as tumbling yields and speculative activity boosts demand for growth stocks (Bloomberg)
• US 2-year yield tumbled 32 bps to 3.85%, the lowest since September 2022
• Gold rallied 3.5%, up 6.5% last week for its best weekly gain since November
• Financial conditions tighten as spreads on lowest-rated debt jump to over 1,000 bp, leverage loans plunge to ten-week low (Bloomberg)
• Money market funds experience biggest inflow since pandemic shock (Bloomberg)

CREDIT SUISSE

• UBS to buy Credit Suisse in $3.25bn deal to end crisis (Bloomberg)
• UBS has offered to buy Credit Suisse for up to $1bn in stock, representing a discount of more than 85% to closing share price last week (FT)
• UBS wanted to voids deal if Credit Suisse credit default swaps jump by 100 bp or more and pushing for protection from government from any pending legal cases and regulatory investigations into Credit Suisse (FT)

US BANKING CRISIS

• Midsize banks ask FDIC to insure deposits for two years (Bloomberg)
• First Republic gets $30bn of fresh deposits in bank rescue (Bloomberg)
• US government struggling to find buyer for SVB (Bloomberg)
• Banks borrow $165bn from Fed in rush to backstop liquidity (Bloomberg)
• Warren Buffett in contact with Biden Team on banking crisis (Bloomberg)
• Moody's follows S&P and Fitch by cutting First Republic to junk Bloomberg)

ECONOMY

• US consumer sentiment deteriorates in March, inflation expectations fall (Reuters)
• China cuts banks’ reserve requirement ratio by 25 bps from 27 March in an effort to stimulus the economy and lower funding costs for businesses (Bloomberg)
• Credit Suisse rescue gives ECB confidence to hike rates (Reuters)
• Fed facing calls to pause rate hikes after recent banking sector turmoil has tightened financial conditions by the equivalent of 150 bps in rate hikes (Reuters)
• RBA rate hike near as jobless rate drops to 3.5% (The Australian)
  
  

DEEPER DIVE

UBS and Credit Suisse

UBS has agreed to buy Credit Suisse, here are the final terms:

• UBS will pay about 0.76 Swiss francs a share in its own stock, worth US$3.2bn
• This is up from a big of 0.25 Swiss francs earlier today

This default risk isn't gone as UBS credit default swaps have more than doubled since the news broke.

"Let me be very specific on this: UBS intends to downsize Credit Suisse’s investment banking business and align it with our conservative risk culture. We will be de-risking a lot of the tricky businesses that we are inheriting," said UBS Chairman Colm Kelleher. We'll provide a deeper dive into this fiasco in tomorrow's Morning Wrap.

Oil: Supply, Demand and China

Oil prices collapsed 13.6% last week, marking one of its worst weekly performances since March 2020.

OPEC notes that supply has been outpacing demand since the second quarter of 2022 but expects demand to outperform in the second half of this year.

The energy cartel also upgraded its demand outlook for China. This view is in-line with recent projections from Goldman Sachs, which cited:

• "The rapid improvements in domestic mobility and solid January-February activity data suggest China's post reopening recovery appears stronger than our previous expectations, thanks mainly to the frontloading of reopening impulse and fiscal support."
• "These adjustments boost our 2023 full-year GDP growth forecast to 6.0% year-on-year from 5.5% previously."
• Though the frontloading of stimulus resulted in a downgrade to 2024 forecasts to 4.6% from 5.0%