Swiss engineer huge unwanted merger

Kia ora,

Welcome to Monday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.

I'm David Chaston and this is the international edition from Interest.co.nz.

And today we lead with news Credit Suisse has been sold off at a bargain-basement price.

There is a deal in Switzerland where their #1 bank UBS will buy their troubled #2 bank, Credit Suisse. It is probably a deal no-one wants however, except the regulator. Their central bank is funding a US$100 bln liquidity support arrangement for the merger in a bid to end the crisis at Credit Suisse. At least 9000 jobs will be cut at Credit Suisse, probably more after the takeover. UBS is said to get their rival for US$2 bln which given their shareholders funds pre-deal were on the books at US$45 bln, the shareholders are all but wiped out getting 5c on the $1. Senior management is all fired and the board dismissed.

Through this turmoil, investors will continue to monitor the situation in the banking sector this coming week and await monetary policy decisions from major central banks including Fed, BoE, SNB, and Norges Bank. Also, in the spotlight will be inflation figures for Japan, the UK, and Canada. Finally, PMI data for the US, Japan, and Europe should provide some details about the health of the manufacturing and services sector in March.

In Asia, the People's Bank of China is expected to leave its loan prime rates unchanged following fresh liquidity injections.

Late on Friday, they cut their reserve ratio again to induce even more lending. They cut it by -25 bps, the first reduction this year. For its biggest banks it is now 10.75% and its lowest in sixteen years. For smaller institutions it is down to about 7.6%. Rating agencies are probably still nervous about where Chinese banks are at present however.

China also said their fiscal revenues fell -1.2% in the first two months of 2023 from a year earlier. Of note is that local governments are finding fewer buyers for land, an important source of 'income' for them as the housing development markets stay in the doldrums.

China is brutal when it changes direction; just ask bond traders. Suddenly and unexpectedly, regulators cut off market data for their US$21 tln bond market on the basis that providers of quotation details weren't 'permitted' properly. Suddenly bond traders were operating blind. Things are returning to a sort-of-normal now.

Meanwhile, China has reduced its holdings of US Treasury paper by -17% over the past year. Other countries are too. But to be fair, foreign holders of American debt have always been a minority.

Singaporean exports fell -8% in February from January, much more than anticipated. Year to date they are down -16%.

US data released over the weekend was a touch softer than expected with industrial production slipping slightly in February and the University of Michigan sentiment survey for March coming in a little weaker than expected. But at least inflation expectations retreated in this survey.

In Canada producer prices fell in February, the seventh dip in the past ten months. They are now only +1.4% higher than year-ago levels and may be a key reason the Bank of Canada skipped a rate increase at its review last week.

The OECD has raised the expansion prospects for major economies from the trim they made a few months ago. This improvement is because they see inflation easing now. But the improvement will be muted because interest rates will keep risks high. However, higher interest rates to squash inflation is the right medicine, they say.

Meanwhile the prices of some core commodities are rising again, like iron ore, and steel. But coal is continuing its steep retracement. And copper is going nowhere.

The UST 10yr yield starts today at 3.44% and up +4 bps from this time Saturday. 

The price of gold will open today at US$1989/oz and up another +US$14 from this time Saturday. That is up +US$125 or +6.7% in a week.

And oil prices start today down -50 USc from Saturday at just on US$66.50/bbl in the US. The international Brent price is at just under US$72.50/bbl.

The Kiwi dollar is still up against the USD and now at 62.7 USc. Against the Aussie we are up at 93.6 AUc. Against the euro we are also up at 58.8 euro cents. That puts the TWI-5 at 70.9 with an +80 bps surge over the past week.

The bitcoin price is much firmer today again, now at US$27,964 and up another sharp +5.3% from this time Saturday. And volatility over the past 24 hours has been moderate at +/-2.5%.

You can find links to the articles mentioned today in our show notes.

And get more news affecting the economy in New Zealand from interest.co.nz.

Kia ora. I'm David Chaston and we’ll do this again tomorrow.