CHM Blog

Overnight more bank issues, this time in Europe and globally. The lead bank issue this morning Credit Suisse that has been in the headlines recently on credit concerns, was pummeled when its largest shareholder, Saudi National Bank refused to add additional liquidity to the bank. Prices as high as 1,200 basis points on one-year senior credit-default swaps. Other European banks being sucked into the panic. Credit Suisse stock down 26% and other large institutions down 10 to 15%. It is a huge run to safety now, as the days recently pass the idea if a global recession has gained momentum. Investors scrambling, traders overwhelmed with how rapidly investors are turning against large lenders after SVB and Signature Bank in the US failed over the last two days.

The 10 year note yield yesterday increased 11 bps, MBS prices down 32 bps. This morning the 10 year at 9 am ET 3.48% -21 bps, the 2 year note at 3.88% down 37 bps. MBS prices +33 bps The DJIA at 9 am in futures trading down 650 points after rallying 336 points yesterday when the fears over the banking system relaxed. This morning the concerns reignited.

Inflation in Feb declined more than estimates on producer prices released at 8:30 am and almost unnoticed. Feb PPI m/m expected +{0.3% as released –0.1%, Jan +0.7%; year/year expected 5.4% reported 4.6% and down from 6.0% in Jan. Core PPI m/m +0.0% against forecasts of +0.4%, year/year thought to be +5.2% was 4.4% compared to 5.4% in Jan.

Feb retail sales expected -0.3% were down 0.4%, ex autos expected +0,2% declined 0.1%.

This morning MBA reported mortgage applications increased 6.5% last week from the prior week, purchase apps +7.3%, re-finance apps +4.8%.

At 9:30 am the DJIA opened -513 (-620 at 8:30 am in futures markets), NASDAQ opened -130, S&P -56.

March NAHB housing market index increased 2 points to 44 from, estimates were 41.

Asset managers are increasingly turning on the banking system, as cracks in the system are bigger than what was expected 48 hours ago. BlackRock Inc. Chief Executive Officer Larry Fink; “Are the dominoes starting to fall?”… “It’s too early to know how widespread the damage is.”… “We don’t know yet whether the consequences of easy money and regulatory changes will cascade throughout the U.S. regional banking sector (akin to the S&L crisis) with more seizures and shutdowns coming,” Fink said. “It ultimately lasted about a decade and more than a thousand thrifts went under.” BlackRock’s client assets under management have surged to $8.6 trillion. On inflation Fink said inflation is likely to stay between 3.5% to 4.0% over the next few years. Bridgewater Associates founder Ray Dalio: “This bank failure is a ‘canary in the coal mine,”… It’s an “early-sign dynamic that will have knock-on effects in the venture world and well beyond it.”… “It is likely that this bank failure will be followed by many more problems before the contraction phase of the cycle runs its course,” he added. “We are approaching the turning point.”

On Monday, the view had been SVB and Signature Bank were outliers, how rapidly that has changed to what is now being thought as being systematic. Watching technicals on the 10 year note, the yield testing 3.40%, a critical technical chart resistance, although given the momentum building it may not hold for much longer if continued contagion grows.

PRICES @ 10:00 AM

S&P 500: 3867 -52

Richard Sardella has been actively managing and providing services in the mortgage industry for over 30 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.

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