Incremental Progress Emerging in the Banking Sector Fallout

CIO Larry Adam outlines the positive events that are outweighing negative developments and looks at dynamics to focus on in the week ahead.

While the financial markets and headlines remain volatile, there has been some incremental positive momentum. Review below some of the positive events that outweigh the negative developments over the last few days, as well as some dynamics to focus on in the week ahead.

Positive events

• Global financial contagion averted | Over the weekend, UBS agreed to buy the troubled bank, Credit Suisse, for more than $3 billion. The last-minute deal prevented the bankruptcy of a global systematically important bank and should lay the foundation for greater stability in the banking sector globally amid the current crisis.

• China cutting interest rates | China’s 0.25% reduction in the reserve requirement ratio is another indication that the country’s economic cycle is very different from that of the rest of the world. As the rest of the world has continued to increase interest rates, the Chinese central bank has reduced rates to support Chinese economic activity after the abandonment of the country’s “zero COVID” policy. China stimulating global growth is encouraging to offset any potential weakness in growth in the developed world.

• Central banks enhance liquidity provisions | Over the weekend, the Federal Reserve (Fed) plus the central banks of Canada, England, Japan, the ECB and the Swiss National Bank agreed on a “coordinated action to enhance the provision of liquidity via the standing U.S. dollar liquidity swap line arrangements.” The new measure increases the frequency of “seven-day maturity operations from weekly to daily.” With this new daily frequency, the central banks will be better equipped to deal with global funding issues across the global economy. Increased liquidity for the markets is constructive.