The Chicago Fed National Financial Conditions Index (NFCI) increased further last week

What does this mean?

Financial conditions tightened

Simply explained👇 What is the Chicago Fed National Financial Conditions Index (NFCI)?

It's an index released weekly by the Fed which represents the amount of stress in the US financial system

How to interpret?

The X axis represents AVERAGE financial conditions

The blue line represents NFCI

Fed Balance Sheet ⚠️

1. The Fed has now increased its balance sheet by ~$400B in two weeks, undoing >50% of QT reduction

2. This week's Bank Term Funding Program use - $53.7B. Total $65.6B in its first 11 days

3. Discount window usage $110.2B in the last week

Is QE back? 👇 In short, the answer is no

Let me tell you why.

There is a distinct difference between quantitative easing (QE) and what the Federal Reserve is currently doing that is leading to its balance sheet increases.

Credit Suisse merger with UBS⚠️

1. $3.3B all share offer

2. Write down of $17.2B CS AT1 shares to zero⚠️

3. Swiss govt. will cover $9.7bln of potential CS losses imparted on UBS and a further $107.7B liquidity made available from SNB

4. Current CS staff to remain employed for… twitter.com/i/web/status/1… 1. An all share offer means that the value equivalent of the agreed deal ($3.3B) in UBS shares will be come under ownership of Credit Suisse as payment, rather than using cash or debt to purchase the company.

The price per share is a 99% decline from Credit Suisse's ATH

Concerns over small US banks ⚠️

Something has happened since the start of the banking liquidity crisis we are all watching unfold.

It has created a scenario in which perceived risk is completely polarised within the banking world.

Let me explain 👇 Since the fall of SVB and Signature Bank we've seen a rush to ensure that 100% of deposits in both banks are backed and no one with their money in either loses their deposit

Credit Suisse ⚠️

Founded 167 years ago
Number of Employees 50,000+
Assets held end of 2022 - $574b
Asset management - $1.5T+

Down 75%+ YTD
Down 20% today

1 of 30 'systemically important' institutions as per International Financial Stability Board.

Things don't look great 👇 Credit Suisse are no stranger to scandal and have had multiple run ins with the law for various reasons - money laundering, bribery just to mention a few.

In fact they've paid over $11b in fines since 2000

That's more than their current market cap

https://twitter.com/GRDecter/status/1636119654904082432?t=-3GNLrIrxoptLU6FoDz4ZQ&s=19

The Federal Reserve have announced a new system created to protect banks from collapse in response to SVB and Signature Bank.

They've called it the Bank Term Funding Programme

Let's get this explained simply 👇 A large part of the reason SVB collapsed was because it bought a massive amount of low interest US T-Bills that plummeted in value after interest rate hikes and inflation rendered their return absolutely terrible.

WEEKLY MACRO HIGHLIGHTS

1. European Q4 stagnation & less pessimistic consumers in 2023

2. UK GDP & retail sales beat

2. J. Powell hawkish speeches & higher interest rate indication

3. Strong non-farm & JOLTS but rising unemployment

4. Silicon Valley Bank💥

Simple commentary Before we get in to it, it needs to be clarified that this week was a tale of two narratives.

We started the week becoming more and more confident of faster interest rate hikes, and by the end the second largest US bank failure in history had occurred.