The strongest to the weakest of the major currencies

The JPY is the strongest of the major currencies and the CHF is the weakest as the North American session begins. The weekend news had UBS taking over Credit Suisse. Credit Suisse wrote down $17 billion of bank debt to zero to increase tier 1 capital ahead of the merger . UBS shares are down to start the week at $17.73. Credit Suisse shares have been marked down to $0.84 or -58% on the day (I guess that is now the value from the takeover). Meanwhile in the US, First Republic shares are down to -$19.24 from the closing level of $23.03. The banks that deposited $30B may be tempted to hit the withdrawal button soon (not serious). Rating agencies kicked the rating down over the weekend.

Those banking concerns have the flow of funds into the "relative safety of the JPY" (purposely put into quotations), and out of the CHF. The USD is mixed as traders wonder about the end game in the US with First Republic sitting on a knife's edge a few days after a consortium of US financial institutions deposited $30 billion into the troubled institution, and Swiss banking is not very steady (will there be a contagion there?).

The major central banks did enhance global liquidity by opening up swap lines.

Meanwhile the clock is ticking to the Fed rate decision that will take place on Wednesday. The meeting may be most uncertain meeting in the history of any central bank. The way that the meeting lined up, did not allow the Fed to speak on monetary policy as they were in the quiet period (I guess they could have talked and they actually could have met and decided on policy as well, but they chose to remain silent). This prevented the Fed from easing in the rate game plan given the new banking uncertainty (I guess they may not know it anyway). The Fed will also have the unenviable task of creating a dot plot, and also projecting PCE inflation, employment, and GDP going forward. The Nvidia chips are churning away given all the models inputs now.

What the market has done independently - and in real time - is take yields sharply to the downside, and start to price in cuts upwards of 100-125 basis points by the end of the year. The January 2024 Fed funds contract is down to an implied yield of 3.77%. If the Fed hikes by 25 basis points that equates to a 125 basis point cut by the end of th has sent to youe year. If they don't do anything it's a 100 basis point cut.

As such, 2 year yields is trading down again today (-8.7 basis points) to 3.75%. The 10 year is down -3.4 basis points in early trading. US stocks are trading near unchanged. European shares are bouncing on relief.

There are no economic releases today, but on the geopolitical front Russia's Putin and China's Xi will meet today.

A snapshot of the market currently shows:

  • Spot gold is down -$4.85 or -0.26% at $1983.50.
  • Spot silver is trading down nine cents a -0.40% at $22.50.
  • WTI crude oil is continuing to go to the downside and trades just below $66 at $65.98 down $0.95 on the day
  • Bitcoin is becoming the currency of choice as it trades at $28,287. That is the highest level since June 12 2022. The price closed on Friday at $27,466

In the premarket for US stocks, the major indices are trading around unchanged (they were lower).

  • Dow Industrial Average -17 points after Friday's -384.57 point decline
  • S&P index -3.75 points after Friday's -43.64.2 point
  • NASDAQ index -6 points after Friday's -86.76 point decline

In the European equity markets, the major indices are seeing it bit of a relief rally:

  • German DAX, +0.61%
  • Frances CAC, +0.82%
  • UK's FTSE 100 +0.42%
  • Spain's Ibex, +0.38%

In the US debt market, yields are mixed with the shorter and lower in the 30 year marginally higher:

  • 2 year yield 3.75%, -9.7 basis points
  • 5 year yield 3.412% -5.3 basis points
  • 10 year yield 3.380% -1.9 basis points
  • 30 year yield 3.609%, +0.8 basis points

In the European debt market, the benchmark 10 yields are also trading lower, but off their lowest levels as stocks started to rebound. The German tenure yield reached a low of 1.923%, but has rebounded back above the 2% level:

European benchmark 10 year yields