Morning Commentary – 03/16/2023

Published Mar 16, 2023

Daily Market Report

Another chapter in the banking crises was written overnight when the Swiss National Bank announced that it will lend Credit Suisse up to $54bn in an effort to stabilize its financial underpinnings and assuage investor fear that contagion is imminent.  Together with the Swiss Financial Market Supervisory Authority, the SNB affirmed that Credit Suisse “meets the capital and liquidity requirements imposed on systemically important banks.”  It was enough to stem the tide of selling in CS stock and spark a 20% correction off the lows.  While the news was welcomed domestically, it proved insufficient to generate a meaningful response in equity futures which are currently pointing to more losses at the open.  Suffice it to say, the novel is far from complete with more plot twists essentially a foregone conclusion.

What is not a foregone conclusion is the outcome of next week’s FOMC meeting during which the Fed must balance the smoldering contagion risk with still hot inflation numbers.  Fed fund futures have gone from pricing in a 50 basis point hike to no hike, and now about 75% odds of a 25 basis point hike, but who really knows.  The Fed desperately wants credibility and that is hard to achieve if they reverse course the moment the economy begins to flash warning signs.  That said, they are a savvy bunch and know full well how quickly a disruption in financial markets can get out of hand.  Historically speaking these do not tend to be isolated incidents that are quickly resolved. 

Treasury yields achieved new cycle lows yesterday, and despite the Credit Suisse news overnight there has yet to be any sort of meaningful reversal.  The 10yr is currently framed lower by around 2 basis points versus last night’s closing marks.  Mortgages continued their trend of underperformance though current coupons still improved over 60 basis points in price.  Today’s economic calendar has a lot on offer, including housing starts, building permits, Philly Fed business indices, and weekly jobless claims, but data of late (even the top tier variety) has been relegated to background noise in the context of bank headlines.  Good luck!


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