27 MAR 2023 – Monday Market Highlights – Transcript

Good morning its Monday the 27th of March and I am Kate from Milford.

This week in economic news the federal reserve increased the cash rate by 25bps, taking the fed funds rate to 4.75% TO 5% which was largely expected by the time of the print with the market implying an ~85% chance beforehand.

The Feds dot plot which summaries the FOMCs outlook for the cash rate was broadly hawkish with not a single member lowering their forecasts for where rates will be by the end of this year. And the terminal rate projection remained unchanged at 5.1%.

The Feds statement talked down the US banking crisis, reiterated their inflation targeting and stating ‘they have a long way to go to get inflation to 2%.

US regional banks still in the limelight with PacWest seeking capital as they saw 20% of deposit outflows since the start of the year.

Moving to the UK. The CPI print was a big beat to consensus on top line and core. Top line was 10.5$ yoy compared to expectations of 9.9% and core reached 6.2% verse 5.7% expected. The driver was higher food and drinks prices and increase in the services sector inflation.

Off the back of the hot inflation print, the bank of England increased the cash rate by 25bps, taking it to 4.25%.

In equity news, UBS announced it will buy Credit Suisse for 2 billion USD in a government-brokered deal aimed at containing the spread of a potential banking crisis. The all-share takeover is at a 75% discount to credit Suisse previous close price. UBS originally offered $1b usd however that deal was refused.

The Swiss National Bank has offered UBS a $100bn liquidity line and granted them a 9.7bn guarantee on credit Swiss losses.

On the back of this takeover, Credit Swiss’s Additional Tier one bonds were written down to zero while equity holders will receive some compensation. AT1 bonds are a type of convertible bond, which typical hierarchy of losses would suggest ranks higher than equity when a bank fails. But because Credit Suisse’s demise has not followed a traditional bankruptcy, apparently, the same rules don’t apply.

However, other banking regulators in the EU have reassured AT1 investors more broadly that they would take priority over shareholders in the event of future bank crises.

In other equity news, fintech giant Block, share price fell 15% in New York trading after Hindenburg Research released a short report that alleged the company’s cash app is enabling fraudulent behaviour.

In a statement Block responded with “we have reviewed the full report in the context of our own data and believe it’s designed to deceive and confuse investor” and they will be working with the US securities and exchange commission and explore legal action against Hindenburg Research.

Finally in equity news, Australian storage owner and operator, National Storage REIT has raised $300m in an institutional placement at a 4 to 7% discount to the previous close price. The funds will be used to improve the balance sheet and support developments and acquisitions.

Turning to the week ahead

The Australian retail sales print is expected to decline to 0.4% from 1.9% previously.

We can also expect the Australian monthly CPI data. Consensus is forecasting CPI to be 7.1% down from 7.4%

Over to the US. We will get US house price data which is expected to be negative 0.2% month on month, and 5.7% year on year.

US conference board consumer confidence data which measures the level of confidence in the economy is expected to decline from 102.9 to 101

And finally fourth quarter US GDP data will be released. We expect this to be 2.7% down from 3.3%.

Thanks for listening and we will see you next week.