EUROPEAN FUTURES SURGE ON CREDIT SUISSE LIFELINE (0741 GMT) European equity futures jumped on Thursday after Credit Suisse said it would borrow up to $54 billion from the country's central bank, allaying immediate fears of a full-blown banking crisis.
Shares in the embattled bank tumbled 24% on Wednesday but are indicated to open higher by around 26% today, providing some comfort to jittery markets.
"Providing a liquidity lifeline is a positive step and should help to calm market sentiment in the short term," says Mohit Kumar, interest rate strategist at Jefferies.
Euro STOXX 50 futures are taking the news positively, up 1.5%, while futures on the DAX , CAC 40 and FTSE 100 are higher by 0.8%-1.3%. The European Central Bank's policy meeting is now set to take centre stage, with rate hike plans clouded by the turmoil in the financial system.
Money markets are fully pricing in a 25 basis point hike with investors seeing around a 50% chance of a larger 50 bp move. Last week, markets had priced in with near certainty a 50 bp rate rise but at one point on Wednesday saw only a 20% chance.
"The prudent course of action would be to pause and resume hikes later, but the ECB might judge that its already battered inflation-fighting credibility cannot afford it," ING rates strategists say in a note. Meanwhile, Wall Street futures are a touch higher and MSCI's broadest index of Asia-Pacific shares ex-Japan is down around 1%.
(Samuel Indyk)
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ECB INTO THE EYE OF BANKING STORM (0704 GMT)
The European Central Bank (ECB) meets today for the first big test of policymakers' response to bank stability fears that are sweeping the globe. In Asia the brakes came on a rout in bank shares after Credit Suisse's late-night announcement of plans to borrow as much as 50 billion francs ($54 billion) from the Swiss National Bank. The lender called this "decisive action to pre-emptively strengthen its liquidity". It's not entirely clear if that's reassuring or even more worrisome, but traders have initially gone with the former.
European futures rose 2%. FTSE futures rose 1.2%. Bank stocks in Hong Kong , Sydney and Tokyo opened down but crept from lows during the day. Credit Suisse boss Ulrich Koerner said his bank's liquidity basis is "very, very strong". But three recent U.S. bank failures highlight the brutal speed with which confidence, and deposits, can evaporate. The ECB's response to this febrile atmosphere in financial markets - while inflation is still running hot - will be telling on policymakers' approach to the mounting stress.
It will be a tricky balance. A big interest rate hike, even if justified by economic conditions, can unleash fear that more banks - or something else - is going to break. A hold-steady or even a cut will feed fears that something very big is very wrong. Either way, the outcome will test markets' dramatic repricing of the worldwide interest rate outlook in recent days. Traders see a 25 basis point hike as the most likely outcome, a dramatic come-down from near certainty on a 50 bp hike only a day earlier.
Key developments that could influence markets on Thursday:
- Customers and markets' response to Credit Suisse's plans - ECB policy meeting: Decision 1515 GMT; news conference ($1 = 0.9314 Swiss francs)
(Tom Westbrook)
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