EM Market Report

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Thanim Islam
Thanim Islam 16 March 2023

- Banking crisis switches to Europe

- Euro weakens most in three years

- Interest rate markets discount rate hikes further


  • Yesterday Credit Suisse appealed to the SNB (Swiss National Bank) for a public show of support after their shares hit the lowest on record. The fall in the share price came after their biggest shareholder, Saudi National Bank, declared they will not put any further investment into the bank. The spread of the banking crisis into Europe caused markets to dial back rate hike expectation by the ECB, with now only a 12% chance of a 0.50% hike today. The EUR subsequently had its worst daily performance versus USD for three years. GBPEUR climbed to the highest level for 4 months.
  • The SNB answered their calls by allowing Credit Suisse to borrow up to CHF50bn, and offered to repurchase debt. There are some suggestions also UBS could be involved in some kind of takeover/merger. In the early hours of today the EUR has clawed back half of its losses versus both the USD and GBP.
  • Volatility in the bond market spiked higher yesterday with yields on government bonds in the UK, US, and Europe all sliding as markets consider we may be at the end of the global rate hike cycle. Markets now see almost 1% of rate cuts by the Fed by year-end and equities also slid, taking risk assets lower and safe havens such as JPY and USD all gaining.
  • On the data front producer price inflation and retail sales in the US both came in lower, given markets even more reason to discount rate hikes by the Fed.


Market rates

* Daily move - against G10 rates at 5:00pm, 15.03.23

** Indicative rates - interbank rates at 5:00pm, 15.03.23

Table (54)

Data points

Table (55)


  • None today.

Our thoughts

An element of calm in the markets so far this morning, with equity futures climbing higher after the SNB agreed to assist Credit Suisse. As a result we have seen some losses on USD. Half of the daily loss on the EUR has now been erased on the news as well, with markets now looking towards the ECB rate decision and Christine Lagarde’s press conference. This will be first public appearance by a central banker since the breakout of the recent banking crisis, and markets will look to take cues to see the impact on future monetary policy. Markets had been anticipating a 0.50% rate hike by the ECB but some now expect a 0.25% hike. In the current markets where interest rate markets are dialling back rate expectations, a 0.50% hike followed by a hawkish statement could make the EUR the leader of the pack and yesterday's losses could be a distant memory.

Chart of the day

The extent of the panic/concern in the markets was evident yesterday following the slide of Credit Suisse shares. All it took was a comment from their top shareholder to cause an outright panic, and similar to the SVB headlines last week discounting Fed rate expectations, money markets discounted the ECB’s hike expectations.

As a result, EURUSD dropped 2% across the day. A retracement has been seen following the SNB lending a helping hand to Credit Suisse, but the current market dynamics could well mean we only see a 0.25% hike by the ECB.

Christine Lagarde’s press conference will be the first opportunity for a central banker to comment on the current banking crisis, and the impact on monetary policy.

16032023 cotdSource: Bloomberg Finance L.P.

Have a great day.