Mid-Market Update: Stocks fall as banking worries persist, Credit Suisse crisis, Euro plunges, Oil crashes through $70, Gold demand surges, Bitcoin softer

US stocks are dropping as Wall Street anticipates further global banking turmoil after Credit Suisse fails to secure additional capital and their CDS hit crisis levels. ​ Weak banks are feeling exposed to the past year of global central bank tightening and they will likely now have to deal with skyrocketing funding costs. The bloodbath is not just hitting financials, but also sending energy, material, and industrial stocks lower.
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​Yields/FX

Treasury yields are in freefall and so our Fed rate hike expectations. ​ Fed fund futures are now pricing in no rate hike at next week’s FOMC meeting and over 100 basis points in rate cuts by the end of the year. ​ The 2-year Treasury yield fell 44 basis points to 3.811%.

The euro dropped over 2% in early trade over contagion risks from the Credit Suisse crisis. The ECB was supposed to deliver a half-point rate hike tomorrow but it seems traders are doubtful that policymakers will be able to follow through on that pledge.

Credit Suisse

Credit Suisse shares plunged to fresh record lows after their largest investor, Saudi National Bank said they could not provide more assistance as that would take them above 10% ownership, which would become a regulatory issue. ​ Credit Suisse’s over 30% drop was the largest one-day selloff and is triggering further global banking turmoil fears. ​ Their (1-year) default swaps surged to almost 1000 basis points. ​ This is getting uglier by the minute.

Any distressed bank is going to see surging funding costs, so banking turmoil will remain the primary focus on Wall Street. ​

Oil

Oil continues to slide as global market turmoil is driving weaker growth concerns. Energy traders are watching excessive technical selling after WTI crude was unable to hold the $70 a barrel level. ​ Right now all the headlines appear to be rather bearish for the crude demand outlook: Credit Suisse is a bank that matters and contagion risks won’t be easing anytime soon, the US consumer is weakening, and China’s outlook is not looking so robust after unemployment rose and on worries over the real estate market.

The oil market is going to be stuck in a surplus for most of the first half of the year, but that should change as long as we don’t see a major policy mistake by the Fed that triggers a severe recession. ​ Now near the mid-$60s, WTI crude’s plunge is at the mercy of how much worse the macro picture gets. ​ If Wall Street ends up seeing a retest of the October lows in the next week, that could support further downward pressure for WTI crude towards the $60 level. ​ Despite all the risks on the table, the oil market is still probably going to swing back to a deficit this summer, so some traders might be looking to scale into some long-term bets around the $60-65 region.

Energy stocks may remain under pressure a little while longer given the deteriorating crude demand outlook and short-term surplus with supplies. Energy stocks had a nice three-year run and outperformance over the past 12-months, so the current selling pressure could remain intense. ​ Longer-term views however still support having energy in your portfolios as a lot of the oil giants have robust balance sheets that support continued buybacks and dividends. Despite the macro risks, oil majors have a good chance of still keeping profitable outlooks given how quickly the oil market could swing back to being tight.

Gold

Wall Street is finding comfort in gold as safe-haven demand roars back over global banking turmoil, hedges against sticky inflation, and as many traders unwind stock positions. As investors grow nervous that a retest of the October stock market lows is coming, gold is looking like it has a clear path towards the $1975 level. ​

Bitcoin

Bitcoin weakened as chaos across Wall Street saw another banking crisis trigger another wave of panic-selling of risky assets. ​ Credit Suisse is a bigger story than SVB and this has Wall Street extremely nervous. ​ Bitcoin’s decline isn’t that bad when you consider how much pressure is hitting stocks, oil prices, and the euro.

Banking turmoil could ultimately prove to be rather bullish for Bitcoin, but for now crypto weakness is justified. ​

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