This report is from today's CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
UBS' planned takeover of Credit Suisse calmed the market slightly. Broader market conditions, however, still look unstable.
What you need to know today
- Financial regulators engineered the plan for UBS to buy Credit Suisse, with an aim to increase confidence in the banking sector. Investors responded in kind. In Europe, UBS shares rose 1.02% (though Credit Suisse tanked 55.74%, making each share worth less than $1). Banking stocks in the pan-European index, Stoxx 600, were up 1.3%, giving the index a 1% gain.
- Saudi National Bank confirmed to CNBC it lost around 80% of its investment in Credit Suisse — that's a loss of more than $1 billion — amid UBS' planned takeover of Credit Suisse.
- Another big loser: owners of Credit Suisse's so-called additional tier one bonds, which were worth 16 billion Swiss francs ($17 billion) — but are now worth nothing. Bondholders, unsurprisingly, aren't happy about it.
- In the U.S., First Republic Bank continued sinking. The bank cratered another 47.11% after Standard & Poor's cut its credit rating to B+ from BB+. To stem the rout, JPMorgan Chase is advising First Republic on strategic alternatives such as raising capital or attempting a sale, sources told CNBC's David Faber.
- Other regional U.S. banks, however, managed to rebound. New York Community Bancorp (which agreed to buy Signature Bank over the weekend) surged 31.65%, PacWest Bancorp jumped 10.78% and KeyCorp edged up 1.21%. U.S. markets staged a relief rally. All major indexes made minor gains.
- PRO UBS' acquisition of Credit Suisse could give it big gains — and other big U.S. banks could benefit, analysts said. As Wells Fargo's Mike Mayo put it, "Goliath is winning."
The bottom line
The "Minsky moment," named after the economist Hyman Minsky, is a sudden collapse of the market after a long period of aggressive speculation brought on by easy money. Markets might face a Minsky moment soon, warned Marko Kolanovic, JPMorgan Chase's chief market strategist and co-head of global research.
Markets haven't collapsed. Some bank stocks are in the doldrums, yes, but the SPDR S&P Regional Banking ETF, a fund of regional bank stocks, rose 1.11% on Monday. Major indexes were up yesterday too. The Dow Jones Industrial Average gained 1.2%, the S&P 500 added 0.89% and the Nasdaq Composite increased 0.39%.
But there are signs market instability is increasing. The banking crisis is causing regional banks — which account for around a third of all lending in the United States — to reduce their loans, said Eric Diton, president and managing director of The Wealth Alliance. In other words, the availability of money in the economy is slowing even without the Federal Reserve increasing interest rates.
Speaking of interest rates, analysts seem to think there's no good path forward for the Fed. An interest rate hike "would be a mistake," MKM Partners Chief Economist Michael Darda told CNBC. On the other hand, a pause would cause "panicked reactions by equity and bond investors," according to Nationwide's Mark Hackett. This suggests markets are already so jittery that whatever the Fed does — even if it's nothing — it might cause instability to spread.
With that in mind, investors might want to heed Kolanovic's warning that a Minsky moment could be on the horizon.
Subscribe here to get this report sent directly to your inbox each morning before markets open.
