Western equity markets went back on track yesterday, in a climate that remains very tense after the fall of Credit Suisse, pitifully saved by its rival UBS on request of the Swiss authorities. The current banking crisis is not over yet, as demonstrated by the new plunge of First Republic, whose share price collapsed by 47% yesterday. The stock has been divided by ten in less than two weeks, and closed at USD 12.18 last night. Rumors of a rescue attempt for the institution orchestrated by several other banks led by JPMorgan Chase have so far failed to catch the falling knife.

In this explosive context, indices have nevertheless bounced back. In Europe, the broad Stoxx Europe 600 index gained 1%, while the US S&P500 gained 0.9%. The Zurich stock exchange even closed with a gain of 0.3%, despite the 56% plunge of Credit Suisse. Today, most global indices are in the green, including on Wall Street. This is because investors are betting that the US central bank will prioritize financial stability over price stability.

To that end, the Fed has already deployed a considerable arsenal of guarantees and funding lines, which helped stem the fall of some banks. Obviously, this creates a "moral hazard", you know, that little bitter taste in your mouth because those who act recklessly are bailed out for the greater good. Regulators still let the institutions that went too far go under, so as not to excessively sponsor the risk premium anyway.

The Fed will have the opportunity to clarify its intentions tomorrow, with a monetary policy decision and subsequent comments from Jerome Powell. The market believes that the central bank will raise rates by 25 basis points, a compromise between a status quo that would look like an admission of panic, and a 50-basis point turn of the screw, which would risk collapsing investor sentiment by further slashing the value of bond portfolios held by financial intermediaries. And investors are thinking ahead: they already see US policy rates at 4% by the end of the year, below current levels. Last month, they thought they would be around 5.5 to 6%.

From my point of view, we have once again entered a phase where everything can change on form as well as substance. Every detail will count. The fact that First Republic continues to bleed shows that investors are always on the hunt for the next victim. That's probably why the big Wall Street banks are looking to save her: if she were to fall, the market would be looking for the next one, guided by the smell of blood. In the meantime, confusion can be seen in the path of assets. Gold is rising along with the riskiest major US index, the Nasdaq. Bonds are rising as central banks raise rates. Cryptocurrencies soar as their guardian banks disappear. The Swiss stock market is up the day after the biggest banking disaster in its history. On the other hand, we can underline that the clear decline in oil is rather in line with what the inversion of the American key rate curve has been underlining for a while: a recession is coming. 

In other news, the US is reportedly considering a global guarantee for bank deposits in the event of a deepening crisis, according to Bloomberg. But Hard line Republicans are opposing the move. The debate continues after the cancellation of Credit Suisse's CoCo bonds, which cost the large bond manager Pimco $340 million in losses, for example.

 

Economic highlights of the day:

The February housing data is today’s main indicator. All the agenda is here. 

The dollar is down 0.5% against the euro to EUR 0.9278, and is up 0.3% against the pound to GBP 0.8173. Gold is trading around 1964 dollars. Oil is still under pressure, with North Sea Brent crude at USD 74.47 per barrel and US WTI light crude at USD 68.61. The yield on 10-year US debt is up a bit to 3.48%. Bitcoin is trading around USD 28,000.

 

In corporate news:

  • Tesla’s total vehicle sales in China from Jan. 1 to March 19 were 106,915, or an average of 1,371 units per day, according to data from China Merchants Bank International. In the fourth quarter the daily average was 1,327 units.
  • Regeneron announced Tuesday that Dupixent, its drug developed in partnership with Sanofi, has been approved in the European Union for the treatment of severe atopic dermatitis in children aged six months to five years.
  • Stephen Hoge, Moderna’s president, said Monday that the price of the COVID-19 vaccine would be about $130 per dose in the United States as the U.S. administration plans to shift its vaccine purchases to the private sector.
  • U.S. scientific equipment maker Thermo Fisher and South Korea's Celltrion are among the candidates interested in buying medical device maker Baxter International's biopharmaceutical division, people close to the matter told Reuters.
  • Altimmune plunges 40% in premarket trading after a clinical trial of its obesity treatment resulted in a suspected case of severe nausea and vomiting requiring rehydration.
  • KKR - The U.S. private equity firm announced on Tuesday that it had sold its stake in X-elio to Canadian asset management group Brookfield, which now owns the entire capital of the Spanish renewable energy company.
  • Nvidia CEO Jensen Huang is expected to unveil new chips and artificial intelligence technologies at the company's annual conference on Tuesday.
  • Tencent Music Entertainment reported a better-than-expected quarterly profit Tuesday on the back of a subscriber increase and an advertising turnaround.
  • Alphabet subsidiary Google on Tuesday announced the suspension of Chinese group PINDUODUO's online shopping app from its mobile program store after malware was discovered. Pinduoduo shares are down 1.9 percent in pre-market trading.

 

Analyst recommendations:

  • Adobe: Phillip Securities downgrades to accumulate from buy. PT up 11% to $402.
  • Balfour Beatty: Jefferies remains Buy with a price target raised from 400 to 425 GBp.
  • Boston Properties: Goldman Sachs upgrades to neutral from suspended coverage. PT up 8.3% to $56.
  • First Industrial Realty: Goldman Sachs downgrades to sell from suspended coverage. PT down 7.1% to $48.
  • Foot Locker: Citi upgrades to buy from neutral. PT up 25% to $50.
  • InterContinental Hotels: Redburn moves from neutral to sell.
  • Intertek: Jefferies remains "Hold" with a price target raised from 4,200 to 4,300 GBp.
  • J Sainsbury: Exane BNP Paribas upgrades to outperform from neutral. PT up 17% to 300 pence.
  • Meta Platforms: Morgan Stanley upgrades to overweight from equal-weight. PT up 26% to $250.
  • Nvidia: Phillip Securities initiated coverage with a recommendation of buy. PT up 22% to $315.
  • SL Green: Goldman Sachs downgrades to sell from suspended coverage. PT down 25% to $18.
  • Tanger: Goldman Sachs upgrades to buy from suspended coverage. PT up 21% to $22.
  • TI Fluid Systems: Jefferies upgrades from underperform to hold, targeting GBp100.
  • Williams-Sonoma: Baptista Research initiated coverage with a recommendation of hold. PT set to $131.50.