Investors, analysts say banking crisis far from over even after Credit Suisse rescue

Troubled bank Credit Suisse has been rescued by Swiss rival UBS in a government-backed deal. PHOTO: REUTERS

MELBOURNE – Investors and strategists say the turmoil in global financial markets still has room to run even after UBS Group’s agreement to take over Credit Suisse Group, and the announcement of new US dollar liquidity measures among central banks.

The key event this week will be the Federal Reserve’s policy decision on Wednesday, with markets waiting to see if the recent tumult in global markets will convince United States policymakers to hold back from raising interest rates.

As trade resumes in Asia on Monday, here are comments from some people in the market:

Ed Yardeni, president of Yardeni Research:

“The current banking crisis is not likely to be as wrenching as the global financial crisis. However, it could cause a recession if it triggers an economywide credit crunch. Whether it will is the question we are grappling with currently,” he wrote in a research note.

“We are not raising our recession odds just yet, but we may have to do so if we see signs that the Fed’s efforts to stabilise the current banking crisis are not working.”

Bob Michele, chief investment officer at JPMorgan Asset Management:

“For sure, it is going to slow growth. For sure, it is going to take down inflationary pressures. The Fed does not have to raise rates on Wednesday. The market’s going to do the credit tightening for it.

“We are expecting the Fed to cut rates in September to stave off recession.”

Gerard MacDonell, senior managing director at 22V Research:

“It is not at all clear that avoiding a rate hike would even help address the financial troubles in the banking system.

“For the Fed to hold off on Wednesday might send a signal of panic. It might also lead to a further intensification of inflation pressures and more bond market volatility down the road,” he said.

“The idea of the Fed pausing even as (policymakers) recognise they later have to go further does not seem convincing,” he added.

Jeffrey Gundlach, chief executive and chief investment officer at DoubleLine Capital:

“Bloomberg reports the gunslingers who foolishly kept holding Credit Suisse’s bail-in bonds are angry they are being wiped out. Seriously? Put on your big-boy pants and look in the mirror. That is where the ‘blame’ lies. Learn how to manage risk!”

Rodrigo Catril, strategist at National Australia Bank:

“The Asia-Pacific has been watching these issues unfold in Europe and the US, so it will be hard to derive any major market conclusions from the price action during our day.

“Key will be how financial markets react to the news tonight, in particular how the CoCo market reacts to the news that Credit Suisse CoCos have been completely wiped out,” he said, referring to the bank’s contingent convertible debt that was written down over the weekend.

Analysts, including Sharon Zollner and David Croy, at ANZ:

“Central banks are trying to separate monetary policy and financial stability concerns, but that is easier in theory than in practice,” they said.

Past excessive stimulatory policy is “coming home to roost in more ways than just inflation outcomes” and there is a risk financial conditions may tighten so much that it causes “a sharply disinflationary hard landing”. BLOOMBERG

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