by Peter Milios
Nine out of eleven sectors are trading lower today, in response to poor performance on Wall Street over the weekend, including the news that investors were pulling back their positions in First Republic and other bank shares.
At noon, the S&P/ASX 200 is 0.38 per cent lower at 6,967.90.
In addition, Swiss bank UBS is acquiring its rival Credit Suisse in an all-share deal worth 3 billion Swiss francs ($4.5 billion), which includes government guarantees and liquidity provisions. The acquisition price is less than half of Credit Suisse’s worth at the end of trading on Friday. The Swiss National Bank is offering 100 billion francs in liquidity assistance to UBS, and the government is providing a 9 billion-franc guarantee for potential losses from assets UBS is taking over. Regulator Finma said about 16 billion francs of Credit Suisse bonds will become worthless to ensure private investors help shoulder the costs.
UBS purchasing Credit Suisse for A$4.5 billion means that approximately 10,000 jobs may go.
The SPI futures are pointing to a fall of 21 points.
Best and worst performers
The best-performing sector is Materials, up 0.8 per cent. The worst-performing sector is Consumer Staples, down 1.53 per cent.
The best-performing large cap is Northern Star Resources (ASX:NST), trading 7.85 per cent higher at $11.745. It is followed by shares in Newcrest Mining (ASX:NCM) and Cleanaway Waste Management (ASX:CWY).
The worst-performing large cap is Suncorp Group (ASX:SUN), trading 4.44 per cent lower at $11.61. It is followed by shares in Insurance Australia Group (ASX:IAG) and Qantas Airways (ASX:QAN).
US continues efforts to contain fallout from SVB’s collapse
NY Times noted First Republic in talks to sell part, or all of itself, to other banks or PE firms. Deals under discussion would involve selling new shares. FDIC announced New York Community Bancorp (NYCB-US ) to acquire all deposits and certain loan portfolios of Signature Bank. Efforts to find a buyer for SVB have yet to bear fruit though FDIC is reportedly willing to discuss backstopping losses to help push through the deal (FT). Comes amid concerns other regional banks facing big losses on investment portfolios, hampering efforts to raise capital (Reuters) and leading to calls by midsize bank coalition for FDIC to backstop all uninsured deposits for next year (Bloomberg). That would require authorization by Congress though Sen. Warren (D-MA), indicated openness to lifting FDIC’s $250K cap (CBS). Meanwhile, Warren Buffett reportedly sounded out the Biden administration to shore up confidence in the banks, including by investing in some regional institutions (Bloomberg).
Central banks announce measures to improve US dollar liquidity
On Sunday, world’s leading central banks, Fed, ECB, BOJ, BOE, BOC, SNB jointly announced effort to ease liquidity pressures by strengthening US dollar swap line arrangements (Bloomberg) Frequency of 7-day maturity operations will increase from weekly to daily, beginning 20-Mar and continuing through end of April. Recall Fed had also enhanced dollar swap lines with other central banks during the 2008 financial crisis and pandemic shock of 2020, in a bid to prevent dollar shortage. Latest intervention comes after the collapse of SVB Financial, turmoil surrounding Credit Suisse and ensuing fallout accelerated funding strains. Banks’ use of the Fed’s discount window for week through 15-Mar eclipsed the record high set during the 2008 financial crisis, while cross-currency swap and FRA-OIS spreads have also widened amid the turmoil.
Fed likely to acknowledge stresses and uncertainties, but still hike 25bp
After a week of volatile bank headlines, attention is beginning to move back to the coming Fed rate decision on 22-Mar. After more than a week of shifts on Powell’s hawkish congressional testimony, softer inflation data, and broad banking uncertainty, consensus seems to have settled around expectations for a 25bp hike (FedWatch). Market pricing also sees rates peaking at 5.00-5.25 per cent in May before possible cuts in June. Analysts believe Fed will reemphasize its data dependence and continue to stress work to be done getting inflation to the 2 per cent target, though economic commentary in the statement and Powell’s press conference is likely to be guarded and acknowledge banking uncertainties. There will also be attention on whether the Fed’s balance-sheet policy receives any tweaking in light of recent developments. Note Fed will also release an updated Statement of Economic Projections (SEP), which could include forecasts for stickier inflation (as hinted at in Powell’s 7-Mar remarks).
Asian markets
Asian markets are mixed so far in today’s session. Nikkei and ASX mildly weaker as Kospi trades flat. Markets trading above indicated lows, tracking gain in S&P 500 futures. Bond markets volatile with Aussie and New Zealand yields down sharply while Treasury curve bear steepening. Dollar and yen seeing broad-based declines. Crude and copper lifting alongside other risk assets. Cryptos little changed.
Company news
TMK Energy (ASX:TMK) has announced a milestone cooperation and electricity offtake agreement has been signed with MAK mining operator. MAK will purchase the electricity generated from produced gas from the three well Pilot Production Well Program. In response, TMK’s CEO Mr. Brendan Stats commented: “Close cooperation between MAK and TMK will be mutually beneficial allowing for significant efficiencies and the ability to better utilise the valuable resources of produced water and produced gas.” Shares are trading 13.33 per cent higher at 1.7 cents.
ABx Group (ASX:ABX) announced that their Rare Earth Mineral Resource Estimate has more than tripled in their Deep Leads project in Tasmania. In response, ABx Group Managing Director and CEO Mark Cooksey said: “Adding to our excitement are the pending assays from our latest drilling, which in some cases have intersected REE zones greater than 30m thick ending in mineralisation.” Shares are trading 4.55 per cent higher at 11.5 cents.
Tietto Minerals (ASX:TIE) has announced they have completed process plant commissioning and ramped up to full production at their Abujar Gold Mine in West Africa. Since 15th February 2023, the mine has operated on grid power, with the process plant performing well on oxide ore, processing more than 11,000 dry tons per day on wet oxide material. Shares are trading 14.7 per cent higher at 64.3 cents.
Breaker Resources (ASX:BRB) announced that Ramelius Resources (ASX:RMS) has made a takeover offer for the Company. Breaker shareholders will receive an implied offer price of $0.40 per share, equating to 1 Ramelius share for every 2.82 Breaker shares held. Shares are trading 31 per cent higher at 38 cents.
Evolution Energy Minerals (ASX:EV1) has announced that their updated DFS confirms Chilalo as a standout high margin, low capex and development-ready graphite project. Evolution Managing Director, Phil Hoskins commented, “I couldn’t be more excited by what 2023 holds in store for Evolution’s shareholders as we strategically assess the financing and development options available to us.” Shares are trading 17.7 per cent higher at 30 cents.
Commodities and the dollar
Gold is trading at US$1782.70 an ounce.
Iron ore is 1.2 per cent higher at US$132.00 a tonne.
Iron ore futures are pointing to a 0.2 per cent fall.
One Australian dollar is buying 67.22 US cents.
