Last week was, in case of many markets, the most volatile week in decades – if not in history. Even though the European indices took the hit, with AEX, STOXX600 and FTSE100 closing respectively 2.67%, 3.77% and 5.33% lower than a week before, the US stock market surprised positively. S&P500 finished the week 2.13% higher, which in such volatile condition is an impressive result on its own. The real winner, however, were the US tech stocks, that have contributed to Nasdaq100 closing the weekly candle 6.53% above the previous one.
On Wednesday, the ECB reportedly asked the banks about their exposure to Credit Suisse, one of Europe's biggest banks managing the assets of value equivalent to roughly 10% of the euro-area economy. On the wave of negative sentiment caused by the last-week bankruptcy of SVB, this has sparked a wave of panic among the depositors and investors, triggering the 11.50% sell-off in the Stoxx600 bank index. It is worth mentioning that while the CS’s shares have crashed by over 30%, its credit default swaps rallied 1367%, currently indicating over 30% probability of the bank’s default.
This massive uncertainty in the financial system has caused immense volatility, especially in the fixed income market. On a weekly basis, the 4-week US T-bill dropped by 84 basis points, which is a move of a magnitude rarely seen among US bonds - especially in the short end of the curve. What should raise even more eyebrows is a 1.07% move in Dec23 Libor contract – the biggest move this future has ever experienced. Given that the Libor futures are a most traded financial instrument in the world, it is clearly visible that the market participants hedge in case the banking crisis spreads to a credit event of a larger scale.
The events have triggered the response of multiple central banks. The SNB reacted quickly to the problems of Credit Suisse, and currently facilitates the talks with another Swiss bank – UBS – over the possibility to take over the part of CS’s business, or even the whole bank. Simultaneously, it has pledged to provide the troubled bank with liquidity.
The People’s Bank of China has decided on a surprising action, cutting its Reserve Requirement Ratio (RRR) by 25 basis points, which is expected to free up more than $72B of the liquidity to be injected to the financial system. This move, combined with surprisingly low growth targets released earlier this month, may indicate that even the recently reopened economy of China starts to catch-up with a global slowdown.
Flow Traders Investment Competition Update
The competition has a new leader again! This week it is Mercury rising to the top with a M2 of 10.68% and with a return of 15.38% they have the highest return of the entire competition. Furthermore, last week was a week of extreme peaks and lows in the competition, with the biggest increase being Heeren XIII rising 25 places, while the biggest decrease was Webb Ellis Investments losing 14 places. At the bottom of the competition we can find INVICTI this week. They dropped just below Carhart Investments, so there is still some hope for them.
