Credit Suisse shares drop on cash call, Finma

Stocks are on the front foot this morning after US and European equity markets bounced back yesterday. The S&P 500 is now flat for the week, whilst the Nasdaq, Russell 2000 and the bulk of European markets remain in the red. The Dow rallied more than 300pts to within about 60pts of Friday’s record close, whilst the Vix closed under 18. The FTSE 100, which is trading up 0.2% in the early session today to hit 6,900, has lost about 1% this week so far after touching a fresh post-pandemic high above 7,000. Crude oil declined again as India’s coronavirus cases surged and stocks built in the US. Attention turns to today’s ECB meeting, which comes after Germany’s constitutional court finally gave the green light to the EU recovery fund and Italian prime minister Mario Draghi set out a €220bn recovery package to boost Italy’s economy. After years of calling for structural reform of European economies from his seat on the ECB, he now finally has the chance to pull some fiscal levers to deliver as PM.

Remember Credit Suisse and Archegos? The Swiss bank at the centre of the storm has today reported a net loss of SFr252m in the first quarter, reflecting a Sfr4.4bn charge taken because of what it coyly describes as “the US-based hedge fund matter”. There is another CHF 0.6bn exposure but the bank has now exited 97% of positions. The bank also announced it will raise capital to repair the balance sheet, issuing Sfr1.7bn in convertible notes to return the CET1 ratio to 13%.

This might help assuage regulators a little. Separately, Swiss financial regulator Finma said today it has opened enforcement proceedings against Credit Suisse in relation to the Archegos affair and ‘possible shortcomings in risk management’, having already commenced an investigation into CS’s dealings with the failed Greensill Capital. CEO Thomas Gottstein said there is no problem with the bank’s risk culture. Har har.

Rather like putting a decent round of golf together, it only takes one out-of-bounds and a three-putt to ruin the card. CS was actually doing quite well before it all blew up. The underlying business results were rather good, with adjusted net revenues excluding significant items and the Archegos bill rising 35% year-on-year to Sfr7.4 bn, and income ex-nasties up 280% to Sfr3.6bn. Shares were down 4-5% in early trade taking it to the bottom of the Stoxx 600. Credit Suisse has found itself out of bounds several times lately – time to go back for some pro lessons.

Crude prices fell as rising cases in India threatened to dampen this summer’s demand-led recovery, whilst US stockpiles unexpectedly rose. The surge in global cases to new records is hurting sentiment towards crude oil as there are growing concerns about the pace of recovery in demand this year. Yesterday the US Energy Information Administration (EIA) reported a build of almost 600k barrels, vs expectations for a roughly 3m barrel drop. Distillate inventories fell more than expected, whilst there was a mild rise in gasoline stocks that was less than anticipated. Gulf Coast refiners expanded capacity to the highest since March last year, although overall refinery utilization rates were steady at 85%.

Spot WTI breached the 50-day SMA and is trading with a bearish bias after losing over $1.30 on Wednesday.

Spot WTI breached the 50-day SMA

Gold continues its run to the upside with little pressure coming from US yields. US initial claims data today is the one to watch. Looking to test the 100-day line at $1,803, which could then call for a return to the $1,837/57 area defined by the 38.2% retracement and 200-day SMA.

Gold continues its run to the upside