Early Morning Call: Credit Suisse emergency lifeline brings some market relief, but for how long?

Equity market overview

There was some relief on the equity market this morning, after we learned overnight that Credit Suisse will be able to borrow up to ₣50 billion from the Swiss Central Bank.

The Swiss lender's shares fell by as much as 30% yesterday, sparking a broader sell-off in European and US bank stocks. This latest announcement helped stem heavy selling on the Asian financial markets overnight.

In Europe, equity markets rebounded this morning after yesterday’s sell-off. The FTSE 100 closed 3.83% lower.

ECB

At 1.15pm, the European Central Bank (ECB) will deliver its decision on rates. Consensus hasn't changed in recent days. The main refinancing rate is still expected to rise by 50-basis points (bp) to 3.5%. Fifty bp is also still on the cards for the deposit facility rate and marginal lending rate expected respectively at 3% and 3.75%.

But some economists believe that central banks are walking on thin ice, and Christine Lagarde could decide to be more prudent. If she chooses to continue to fight inflation and maintain the pace of rate increases, she runs the risk of worsening the situation in the banking sector, where turmoil could become a full-blown crisis.

The Silicon Valley Bank (SVB) collapse last week sent shock waves through global financial markets. Yesterday, the Credit Suisse tumble was seen as an indication that containing the spill-over could prove even more difficult.

Macroeconomic indicators

A few macroeconomic indicators were published overnight.

Japan's trade deficit widened to ¥897bn in February year-on-year (YoY) as imports rose more than exports. Machinery orders, an indicator of investment in Japan as well as a leading indicator of manufacturing production, rose 9.5% in January compared to December 2022.

In Australia, the unemployment rate fell more than expected to 3.5% in February, from 3.7% the previous month.

In the US, investors await building permits and housing starts for February, the Philadelphia Fed manufacturing index for March and initial jobless claims. Economists anticipate 205,000 new claimants last week, after 211,000 the previous one.

Elsewhere on the equity market, Deliveroo confirmed it will deliver positive EBITDA this year after achieving a better-than-expected positive margin in the second half (H2) of 2022.

Savills believes that the first half (H1) of 2023 will be more difficult than H1 2022. The group posted an underlying pretax profit of £164 million, down 18%.

Expect Adobe to jump at the open later today in New York. The stock rose as much as 4.7% in extended trading last night after the company posted a better-than-expected set of earnings and raised its full-year (FY) targets. The maker of Photoshop posted earnings of $3.80 per share on revenue of $4.66bn. Adobe now expects fiscal 2023 profit per share target of between $15.30 and $15.60 versus $15.15-$15.45 forecast earlier.

As for the current quarter, Adobe sees second quarter (Q2) revenue of between $4.75nn-$4.78bn and profit per share of $3.75-$3.80, both largely above Wall Street expectations.