Closing summary Time for a recap US consumer confidence has leapt sharply this month, hitting its highest level since the pandemic began.Stimulus spending and vaccine rollout are spurring hopes of an economic recovery.US house prices have also continued their recent climb: In the eurozone, economic confidence has also jumped to a one-year high.Industrial firms, services companies and consumers all reported more optimism about the future.French consumer confidence also picked up.In Germany, inflation has risen – hitting 2% on an EU-harmonised basis.Economists predict it will keep rising in the coming months, with higher energy prices partly to blame.The fallout of the collapse of Archegos Capital continues to loom over the markets.
Shares in Credit Suisse fell another 3% today, as it continued to assess the cost of its involvement.But another prime broker, Wells Fargo, jumped 3% after it reported that it had not incurred losses.The brokerage arm of Mitsubishi UFJ Financial Group flagged that it faces a potential loss of around $300m at its European subsidiary, related to an unnamed U.S.client.
Archegos itself issued a statement overnight, saying that: “This is a challenging time for the family office of Archegos Capital Management, our partners and employees.All plans are being discussed as [founder] Mr.Hwang and the team determine the best path forward.” Reuters reported that global banks may lose more than $6 billion from the downfall of Archegos.Hopes of an economic recovery pushed US bond yields to a new 14-month high.As prices fell, the 10-year Treasury yield touching 1.77%.Stock markets have rallied in Europe.
Germany’s DAX hitting a new record and the Stoxx 600 approaching its pre-pandemic peak.The UK market also rose, with the FTSE 100 gaining 0.5%.Banks and travel companies led the risers.The burst of economic optimism weighed on gold.It dropped below the $1,700-per-ounce mark to a three-week low.Bitcoin rose 3%, back towards $60,000, after PayPal launched a ‘checkout with crypto’ service that lets US customers pay using cryptocurrencies.
Here are more of today’s stories: Goodnight.
GW Updated European markets hit new pandemic high; another Dax record Today’s burst of economic optimism has propelled European stock markets to a new one-year high.The Stoxx 600 index jumped 0.8% to finish at 431 points – close to its record highs in February 2020, just before the pandemic struck Europe.Germany’s DAX led the charge, hitting the 15,000 points mark for the first time ever.Michael Hewson, chief market analyst at CMC Markets, sums up the day: Markets in Europe have continued to focus on the recovery narrative, putting aside concerns over recent events in the US and last week’s block trade blow out, as well as the economic picture in Europe which continues to look dire as infection rates rise further.Financials are leading the gainers, despite concern about their exposure to the Archegos Capital blow up, with Credit Suisse lower again, with the rest of the sector gaining on the back of higher yields led by the likes of Barclays whose shares are back up close to last week’s high and their best levels in over a year.
Lloyds Banking Group shares are also higher, still below their pre pandemic peaks but still looking good for further gains and making new one-year highs.UK banking shares have underperformed their European and US counterparts over the past 12 months and it’s a little hard to understand why.
Unlike their European counterparts they have largely repaired their balance sheets, and with an economic reopening in the offing, there is the distinct possibility that some of the provisions set aside over the last 12 months may well not be needed.European banks on the other hand are still having to cope with weak demand, a weak fiscal response from EU authorities and negative interest rates.We’ve also seen the likes of IAG, EasyJet and Ryanair post decent gains, despite concerns about rising infections in Europe.There was more bad news for AstraZeneca after Germany said it would once again be reassessing the vaccine after reports of more thrombosis cases, while also saying that they only recommend it for men and women of 60 or over.
This is hardly likely to re-build confidence in a vaccine that already has a self-inflicted PR problem in Germany, and where infections and deaths are still rising.FTSE 100 closes higher Britain’s FTSE 100 index has closed 35 points higher at 6772 points, a rise of 0.5% today.Bank shares were among the best performers, as worries about the fallout from Archegos’s failure faded, and hopes of an economic recovery rose.Barclays gained 4.8%, NatWest rose almost 4%, and Legal & General picked up 3.5%.
British Airways parent company, IAG, finished 5% higher.But defensive stocks such as British American Tobacco (-2%) and silver miner Fresnillo (-4%) fell, along with online grocer Ocado (-2.2%).Updated Shares in US financial group Wells Fargo have jumped 3%, after it reported that it hadn’t incurred losses through its involvement with Archegos Capital.In a brief statement, Wells Fargo explained that it had a prime brokerage relationship with Archegos, but didn’t experience losses from the unwinding of the fund’s positions (after it couldn’t meet margin calls from lenders).Wells Fargo said: “We had a prime brokerage relationship with Archegos.We were well collateralized at all times over the last week and no longer have any exposure.We did not experience losses related to closing out our exposure.” The US dollar has rallied today, on the back of the strong consumer confidence numbers.That’s pushed sterling down to $1.372, a drop of almost a half a cent.
The surge in US consumer confidence this month is a clear sign that America’s recovery is gathering pace.
And that could drive bond yields higher, predicts Robin Brooks, chief economist at the IIF.European stock markets are also ending the day strongly, with Germany’s DAX on track for a new closing high.Back in London, stocks are pushing higher again….with the FTSE 100 index now up 44 points or 0.65% at 6780 points.Banks are having a good afternoon — the jump in consumer confidence in the US and also in Europe is good for their prospects, while rising bond yields signals higher inflation on the way (as we’ve already seen in Germany).
Airline group IAG is the top riser, up 4.7%, followed by engineering group Melrose, whose aerospace division should benefit from a pick-up in travel this year.And here’s a bit more: Here’s some early reaction to the blowout US consumer confidence report: US consumer confidence surges to pandemic high Boom! US consumer confidence has jumped to its highest level since the pandemic began, lifted by hope of a strong economic recovery.The Conference Board’s Consumer Confidence Index surged to a one-year high of 109.7, up from 90.4 in February.That’s a really powerful monthly move.The Present Situation Index—based on consumers’ assessment of current business and labor market conditions—climbed from 89.6 to 110.0.The Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions—also improved, from 90.9 last month to 109.6 in March.
It suggests that the pacey US vaccine rollout is lifting consumers’ spirits, alongside the latest stimulus package which included $1,400 checks for Americans.That follows the strong jump in eurozone economic confidence this morning, to the highest level in a year.Lynn Franco, Senior Director of Economic Indicators at The Conference Board, says US citisens are more optimistic about economic prospects.But, she adds, they’re also concerned about the risk of rising inflation due to higher gasoline prices.Consumer Confidence increased to its highest level since the onset of the pandemic in March 2020.“Consumers’ assessment of current conditions and their short-term outlook improved significantly, an indication that economic growth is likely to strengthen further in the coming months.
Consumers’ renewed optimism boosted their purchasing intentions for homes, autos and several big-ticket items.However, concerns of inflation in the short-term rose, most likely due to rising prices at the pump, and may temper spending intentions in the months ahead.” Updated Wall Street opens lower In New York, stocks have opened a little lower as the jump in US government bond yields weighs on tech stocks.Here are the early prices.- Dow Jones Industrial Average: down 56 points or 0.17% at 33,115 points – S&P 500: down 17 points or 0.4% at 3,954 points – Nasdaq: down 115 points or 0.88% at 12,944 points Financial stocks are rallying, as investors put yesterday’s Archegos slump behind them, with Goldman Sachs up around 2.8%.
But rising Treasury yields (signalling faster inflation on the way) are hurting the tech sector, with carmaker Tesla down 3%, chip manufacturer AMD losing 2.5%, and Apple off by 1.6%.German inflation rate rises Over in Germany, inflation has risen smartly this monthly, as energy prices pushed up the cost of living.The German consumer prices index rose to 1.7% per year in March, up from 1.3% in February, according to a new estimate from the Federal Statistics Office.Energy (motor fuels and household energy bills) were 4.8% higher than a year ago, while goods inflation was 1.9%.Food and services prices both rose 1.6% compared with March 2020 (when the first wave of Covid-19 was hitting Europe’s economy).
On a monthly basis, prices rose by 0.5%.On an EU-harmonised basis, Germany’s annual inflation rate was higher — rising to 2%, which is slightly above the European Central Bank’s target.Carsten Brzeski of ING predicts that German inflation will keep rising, due to various supply-side shocks: With supply chain disruptions, like higher container prices, delivery problems with semiconductors and most prominently, the recent problems in the Suez Canal, producer prices are set to increase further, possibly putting more pressure on consumer prices.Add to this a post-lockdown reflation in some sectors and the reversal of the German VAT rate and for German (and eurozone) inflation, the only way is up.In our view, German headline inflation could eventually range between 3% and 4% in the second half of this year.
However, the ECB has already pledged to look through temporary increases in inflation.Brzeski adds: Today’s German inflation numbers suggest that this commitment has come not a moment too soon.PayPal’s crypto move: What the experts say PayPal’s move to allow transactions in crypto currencies could push bitcoin to fresh heights, reckons Samuel Indyk, senior analyst at uk.Investing.com: “One of the biggest criticisms of cryptocurrencies is that they do not have any real-world usage but when one of the world’s largest digital payments companies begins allowing transactions in cryptocurrencies, then there is every reason to believe Bitcoin can reclaim and surpass its all-time high above $60,000.“In fact, it would not come as a surprise to see Bitcoin reach $100,000 by the end of the year as cryptocurrencies garner further corporate interest and attention from institutional and retail investors.
But Sushil Kuner, principal associate at law firm Gowling WLG, points out that there are risks to embracing cryptocurrencies: Companies with ambitions to accept Bitcoin as a form of payment will need to remember the importance of responding to global anti-money laundering regulatory regimes.Crypto assets have long been criticised for facilitating financial crime including money laundering and fraud.Updated Bitcoin rises after PayPal launches ‘Checkout with Crypto’ While gold struggles, bitcoin has rallied today after PayPal launched its “Checkout with Crypto” service.It means that US customers with cryptocurrency holdings in their PayPal wallet will be able to choose to pay for goods or services at “millions of global online businesses” using those crypto assets.The idea is that it will be as seamless to use bitcoin, litecoin, ethereum or bitcoin cash as it is to use a credit card or a debit card to pay from a PayPal wallet.The crypto will be converted into fiat (eg US dollars, sterling, euros) for the vendor.
PayPal explains: Building on the ability to buy, hold and sell cryptocurrency with PayPal, customers using Checkout with Crypto can check out safely and easily, converting cryptocurrency holdings to fiat currency at checkout, with certainty of value and no additional transaction fees.Checkout with Crypto will automatically appear in the PayPal wallet at checkout for customers with sufficient cryptocurrency balance to cover an eligible purchase.Bitcoin is up 3% so far today at above $59,100, back towards the record highs earlier this month.PayPay’s move looks like another sign that crypto assets are becoming more mainstream.Last autumn, PayPal said it would let users buy and sell cryptocurrencies, a move that seemed to help spark bitcoin’s surge.
This morning’s jump in eurozone economic confidence is supporting European stocks today, says Sophie Griffiths, Market Analyst at OANDA.
With Germany’s DAX at a new all-time high, investors do seem to be looking beyond the short-term risks from Covid-19.She explains: Following on from a record close on the Dow, equities across Europe are pushing higher, boosted by the prospect of a strong economic recovery in the US.
The mood in the market is upbeat, surprisingly so given the third wave of covid which is sweeping across the old continent.Eurozone economic sentiment and French consumer confidence both came in significantly ahead of expectations, with the latter hitting its highest level since December.
Eurozone economic sentiment recorded 101 in March, up from 93.4 in February and ahead of the 96 expected.The data, in line with the rising equities, point to market participants looking past the near term covid headwinds, instead, focusing on the prospect of the economies reopening.The market is in glass half full mode with regards to covid.Even as cases continue to rise in the region and prospects of more curbs are on the table, market sentiment is buoyant, evident by the Dax hitting a fresh all-time high.The fallout from the Archegos margin call appears to be contained, with banks across Europe once again on the rise after experiencing steep declines in the previous session.
One for the historians….Gold is falling further, hit by the move into riskier assets and a strengthening US dollar today.That’s pulled bullion down by 1.5% to $1,686 per ounce, a new three-week low.After a positive start, shares in Credit Suisse have fallen into the red.They’re currently down 2.6% — adding to yesterday’s near-14% tumble.
Reuters points out that Credit Suisse is in the firing line, after warning of losses from Archgos yesterday.Pressure was mounting on Credit Suisse on Tuesday over losses linked to the downfall of Archegos Capital, with analysts warning its dividend and share buyback plans may need to go on hold and investors advised to vote against management pay.
Losses at Archegos, a family office run by former Tiger Asia manager Bill Hwang, sparked a sell-off in bank stocks on Monday as investors feared they would be forced to take big write-downs after extending billions of dollars in leverage to the fund.Global lenders may lose more than $6 billion on Archegos, sources familiar with trades involving the U.S.investment firm have said.Credit Suisse and Japan’s Nomura are set to bear the brunt of this, according to statements from the banks and sources, with one source close to the Swiss lender saying its losses could be as high as $4 billion.
The bank has declined to comment on the size of losses.Time for some lunchtime reading (if that’s matches your timezone!).Bloomberg have written a nice piece about how Bill Hwang was quietly building one of the world’s greatest fortunes at Archegos, before his family office imploded in the last few days.And remarkably, few on Wall Street seemed to be aware of exactly what Hwang was doing in Midtown Manhattan, because family offices don’t have to register their activities with the SEC [details here].
Here’s a flavour: Hwang’s most recent ascent can be pieced together from stocks dumped by banks in recent days — ViacomCBS Inc., Discovery Inc.GSX Techedu Inc., Baidu Inc.– all of which had soared this year, sometimes confounding traders who couldn’t fathom why.One part of Hwang’s portfolio, which has been traded in blocks since Friday by Goldman Sachs Group Inc., Morgan Stanley and Wells Fargo & Co., was worth almost $40 billion last week.Bankers reckon that Archegos’s net capital — essentially Hwang’s wealth — had reached north of $10 billion.And as disposals keep emerging, estimates of his firm’s total positions keep climbing: tens of billions, $50 billion, even more than $100 billion.
It evaporated in mere days.“I’ve never seen anything like this — how quiet it was, how concentrated, and how fast it disappeared,” said Mike Novogratz, a career macro investor and former partner at Goldman Sachs who’s been trading since 1994.“This has to be one of the single greatest losses of personal wealth in history.” Here’s the full piece: One of World’s Greatest Hidden Fortunes Is Wiped Out in Days Updated Here’s the details of the jump in economic confidence in the EU and eurozone: Britain’s business secretary insisted today that the UK steel industry still has a future, after the collapse of Greensill Capital, a key backer of Liberty Steel.Concerns for the future of Liberty Steel and its 3,000 UK workers – with a further 10,000 supply chain jobs dependent on it – have grown after the government rejected its parent company’s plea for a £170m rescue loan.
Speaking on BBC Radio 4’s Today programme on Tuesday, Kwasi Kwarteng described Liberty Steel as a “really important national asset” but said it was important to distinguish between the steel business and its parent company, the Gupta Family Group.It is part of the business empire built up by the industrialist Sanjeev Gupta.
Kwarteng said: “We are custodians of taxpayers’ money, and there were concerns over the very opaque structure of the GFG Group and we feel that if we gave the money, there is no guarantee that that money would stay in the UK and protect British jobs.It’s a multinational enterprise.” He did not rule out the possibility of the government taking Liberty Steel into public ownership.“All options are on the table.We think the steel industry has a future in the UK.
Only two weeks ago my department published an industrial decarbonisation strategy.We want to see clean steel … of the kind Liberty Steel makes.” Here’s the full story: And here’s more on the Liberty Steel situation: Japan’s MUFG flags possible $300m loss related to U.S.client Japan’s Mitsubishi UFJ Securities may also suffer losses from the collapse of Archegos.The brokerage arm of Mitsubishi UFJ Financial Group has flagged that it faces a potential loss of around $300m at its European subsidiary, related to an unnamed U.S.
client.MUFJ’s brokerage house also says this potential loss, which it is still evaluating, won’t have any material impact on its business capability.The AFP newswire has more details: Mitsubishi UFJ Securities Holdings said Tuesday it could face a $300 million loss in its dealings with a US client in what could be the latest deficit caused by last week’s massive stocks sale.The Japanese brokerage house, a unit of Mitsubishi UFJ Financial Group, said its European subsidiary was involved in “an event” on March 26 that could lead to a financial loss.Without naming the client, the Tokyo-based firm said the $300 million loss would not affect its businesses, adding: “This estimate is subject to change depending on the unwinding of the transactions and market price fluctuation.” The announcement came after top global banks Nomura of Japan and Switzerland’s Credit Suisse warned Monday they could face significant losses following reports of their exposure to a US fund that sold billions in stocks last week.
European economic optimism highest since pandemic Economic confidence across the European Union has hit its highest level since Covid-19 hit Europe early last year, as consumers and businesses express more optimism about future prospects.The European Commission reports that economic sentiment and employment expectations are both “sharply improving” this month, in both the EU and the euro area.
Its Economic Sentiment Indicator (ESI) rose in both the EU, jumping 6.9 points to 100, and the euro area, where it surged by 7.6 points to 101.0.The EC explains: For the first time since the outbreak of COVID-19 on the continent, the ESI is back at (in the EU), or slightly above (in the Euro-Area), its long-term average.Also the Employment Expectations Indicator (EEI) saw a forceful increase (+6.1 points to 98.0 in the EU and +6.8 points to 97.7 in the euro area), bringing the indicator in both regions close to its long-term average.The survey found that confidence picked up across all major business sectors – industry, services, retail trade, construction – and among consumers, at the fastest pace since last summer.Amongst the largest EU economies, Germany stood out with the largest monthly improvement of its ESI on record (+7.9) and is currently the only of the ‘big-6’ countries where sentiment returned to above its long-term average.
The monthly increases in sentiment in the other big countries were nevertheless very significant, too: Spain (+6.2), France (+5.4), Italy (+4.9), the Netherlands (+4.4), Poland (+3.3).But still…while manufacturers are relatively upbeat, the measures for consumer, services and retail confidence are still below their long-term averages: Within the key sectors, industry confidence increased for the fourth month in a row, with lifted by higher production expectations and order books.Service sector confidence posted the first sharp pick-up since September last year, with managers now much more optimistic about demand expectations.
This was ‘rather broad based’, the EC says, from real estate, IT and advertising to accommodation and gastronomy.Consumer confidence picked up too, with households more upbeat about the general economic situation in their country, and their personal situation.Updated In Spain, retail sales and inflation have both risen.Retail spending rose by 4.2% month-on-month in February, suggesting a pick-up in demand, although they were still 5.9% lower than a year ago (just before the pandemic).Spanish inflation also picked up, with EU-harmonised consumer prices rising by 1.2% year-on-year in March.That’s higher than expected, with prices up 1.9% on a month-on-month basis.
FTSE 100 holds gains amid bond selloff The FTSE 100 index of blue-chip shares is holding its gains this morning, as investors shift out of bonds and into equities.After around 90 minutes, it’s up around 0.65% at 6779 points, lifted by economic optimism and hopes that the Archegos failure won’t cause systemic problems.
Financial stocks, travel firms, property companies and miners are all giving the index a lift: Saxo Bank’s chief investment officer, Steen Jakobsen, says inflation concerns are driving the markets — with the prospect of more US stimulus spending pushing down bond prices.US Treasuries care more about inflation than Archegos fallout, and they continue their fall.US Treasuries gained yesterday morning as news of Archegos blow up hit the market.However, by the end of the day they reversed their losses showing that the market doesn’t expect it to be a systematic event for the financial industry….
More Covid-19 stimulus is coming in April as well as a large infrastructure bill, which can only ignite inflation.Updated Goldman snacks: bank sends hampers to staff amid ‘inhumane’ working hours Bosses at Goldman Sachs have been sending sympathy snack boxes to overworked junior London bankers in response to complaints over “inhumane” 100-hour weeks that have affected their physical and mental health.The one-off hampers, full of fruit and snacks, are understood to have been paid for by managing directors out of their own pockets, since Goldman has not offered any company-wide gifts or additional bonuses after a leaked report revealed concerns about poor working conditions earlier this month.While some junior bankers said they appreciated the small gift, it pales in comparison with perks announced by rival lenders in the weeks following the Goldman leak.
Jefferies offered 1,124 of its lowest-ranking staff free workout equipment including Peloton bikes worth nearly £2,000, while investment bankers at Credit Suisse are getting a one-time $20,000 bonus for dealing with an “unprecedented” workload during the pandemic.UK funeral services firm Dignity has urged investors to vote against attempts by its largest shareholder to oust the chairman.
A fund managed by Phoenix Asset Management Partners, which owns 29.9% of Dignity, has asked for a shareholder meeting to vote on a proposal to remove Clive Whiley andreplace him with the chief investment officer and co-founder of Phoenix, Gary Channon.In the letter to shareholders on Tuesday, Dignity, one of the UK’s biggest undertakers, said Phoenix was acting out of self-interest and accused it of seeking to take executive control of the company without paying a bid premium.
More here: French consumer confidence at three-month high Good news from France — consumer confidence has bounced back slightly this month, according to statistics body INSEE.INSEE’s guage of households’ confidence in the economic situation has risen to 94 this month, up from 91 in February (but still below the long-term average).Optimism about the future financial situation has picked up, with more families planning to make major purchases.INSEE also reports that: In March, the share of households considering that the standard of living in France will improve in the next twelve months has bounced back sharply.The corresponding balance has gained sixteen points but is still far from its long-term average.Households’ fears about unemployment trend have decreased in March.The corresponding balance has lost eight points but stays well above its average.Gold is also out of favour in this morning.
Bullion has dropped by nearly 1% to $1,697 per ounce, a three-week low.Bond selloff picks up While shares rally, government bond prices are sliding this morning.With investors anticipating a strong US recovery from the pandemic, they’re selling bonds (which pushed up bond yields) and moving into riskier assets.This has pushed the yield (or interest rate) on US Treasury bills to a 14-month high of 1.77%, up from 1.72% last night.
Reuters explains that optimism about America’s economy, driven by stimulus spending, is behind the move.
The latest U.S.bond selloff was driven by news on Monday that those aged 30 and older would now be eligible for coronavirus vaccinations and expectations that President Joe Biden’s infrastructure initiative, with a potential $3 trillion price tag, could further lift economic growth and debt issuance.Updated Germany’s DAX hits another record high In Frankfurt, Germany’s DAX index has hit a fresh peak, as traders shrug off fears of a third wave of Covid-19 infections.
All the main European markets are higher, suggesting optimism about the economic recovery is pushing up shares again.But Connor Campbell of SpreadEx points out that the fallout from Archegos’s demise hasn’t faded….There are dangers lurking to undermine these month-end gains.As occurred when February came to a close, bond yields are on the rise.
And though the markets have broadly made their peace with that in recent weeks, it could still cause a record high-imperilling wobble.Similarly, just because markets appear to have moved on this morning, doesn’t mean the dust has settled on Archegos Capital’s collapse.That situation could still have some nasty surprises up its sleeve.Shares in Credit Suisse are also calmer today – they’ve crept up by 0.15% in early trading, after falling over 13% yesterday.
Japanese bank Nomura had a quieter session today, with shares dipping by just 0.66%.That adds to Monday’s 16% slump, after it warned that it could have lost $2bn through transactions with a US clients (Archegos).FTSE 100 opens higher In the short term, though, investors are looking past the Archegos crisis.Stocks have opened higher in London, with the FTSE 100 jumping 47 points or 0.7% to 6783 points.Travel and hospitality stocks are among the risers, with airline group IAG rising 2% and hotel chain Whitbread up 1.7%.
Bank stocks are also rallying, with HSBC and Barclays up 2%, on hopes that Archegos’s meltdown will be contained.Updated The FT’s Robin Wigglesworth has a handy explanation of why Archegos was able to build up large, highly leveraged positions in Chinese tech and US media companies, with the support of multiple lenders, without triggering attention (until it all blew up): Historically, family offices have not had to register with the Securities and Exchange Commission because of an exemption for firms with 15 clients or fewer.The Dodd-Frank Act that tightened regulations in the wake of the 2008 financial crisis removed this exemption to shed more light on the hedge fund industry.
However, the SEC has let family offices decide for themselves whether they should be registered and file regular reports.A search for Archegos on the SEC’s “Edgar” reporting system yields pretty much nothing — itself eye-catching.Its use of financial derivatives known as swaps to build positions might have allowed it to circumvent reporting requirements on big stakes.Encouragingly, though, he’s hopeful that Archegos won’t cause a wider meltdown, similar to the notorious Long-Term Capital Management firestorm 20 yearo ago.
LTCM was far bigger, more woven into the fabric of several systemically important markets.The Archegos losses will be humiliating to many banks, and in some cases ruin their financial year, but they are much better capitalised since 2008.But again…if investment banks are more reluctant to offer leverage to hedge funds, we couls still see a broader cutback….
More here: Archegos poses hard questions for Wall Street The full consequences from the collapse of Archegos will probably take a few weeks to fully play out, points out my colleague Nils Pratley: As things stand today, the whacks to Credit Suisse and Nomura, whose shares fell sharply, are mainly of concern to their own investors.Hedge funds collapse occasionally.The worry, though, is that this example of stupid risk-taking – on the part of Bill Hwang’s Archegos and the lenders – is a sign of wider delusional thinking.ViacomCBS’s shares, note, had trebled in three months and the specific problem began only when the company tried to raise fresh capital at the higher level.It rather suggests nobody truly believed in the rally.Markets were calmer than expected on Monday and, for now, the theory that Archegos is a one-off is intact.
But let’s see what the next few weeks brings as every big investment bank in the world checks its hedge fund exposures.Stock markets are displaying pockets of extreme valuations, at least by historical standards.
If some banks’ risk-control departments have been asleep, there is potential for trouble.Introduction: Banks brace for losses from Archegos implosion Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.The shock implosion of Archegos Capital is weighing on the markets today.How many billions of dollars will be lost, and how could a single, obscure family office could run up such huge, leveraged positions — and trigger a meltdown that gripped Wall Street, the City, and other financial markets across the globe? The news that Archegos had melted down after failing to meet a flurry of margin calls from its prime lenders captured global attention yesterday, with Nomura and Credit Suisse both admitting that they faced significant losses.Overnight, Archegos, run by investor Bill Hwang, has broken its silence.In a statement, company spokesperson Karen Kessler said: “This is a challenging time for the family office of Archegos Capital Management, our partners and employees.All plans are being discussed as Mr.
Hwang and the team determine the best path forward.” It’s a challenging time for Archegos’s brokers too.Reuters is reporting that global banks may lose more than $6 billion from the debacle.More here: Global banks brace for losses from Archegos fallout It all began when shares in ViacomCBS, a media company heavily backed by Archegos with borrowed money, slumped last week after it issued new stock.
That prompted calls lenders to seek more collateral from Archegos to support its leveraged positions.When it couldn’t meet those margin calls, the prime brokers started to wind up the trades in a $20bn fire sale — with Nomura and Credit Suisse seemingly suffering the bunt of the damage (their shares both slumped yesterday).As Jim Reid of Deutsche Bank explains: The most severe impact was actually experienced by non-US banks, with Nomura (-16.33%) seeing its largest daily move lower ever and Credit Suisse (-13.83%) experiencing its worst performance in over a year, Regulators are also watching the situation closely, concerned about the knock-on impact of the forced liquidation of Archegos.The US Securities and Exchange Commission on Monday said it had been “monitoring the situation and communicating with market participants since last week”.
Japan’s chief cabinet secretary, Katsunobu Kato, said the Japanese government was carefully monitoring the situation at Nomura and that the Financial Services Agency would share information with the Bank of Japan.The Swiss financial regulator, Finma, said it was also monitoring the situation, and warned that several banks and locations internationally were involved.
As a ‘family office’ (basically managing founder Bill Hwang’s own money), Archegos didn’t have to meet the usual regulatory disclosures which hedge funds must meet.And traders are hopeful that the fund’s collapse won’t cause a wider crisis.As Kyle Rodda of IG puts it: Market commentary remains fixated on the drama surrounding the collapse of Archegos Capital Management in the US, as market participants attempt to pick apart the impacts of the failure and the potential for greater financial contagion.For all the concern however, for the time being, other than some localized pain in some major financial stocks, especially in Japan, where that country’s equities have struggled in the face of the episode, risks on a systemic scale still appear to be low.But even if the short-term damage can be contained, the episode has shoved hedge funds, and their use of leveraged positions, firmly into the spotlight.Investment banks may well tighten their lending limits, which could force some hedge funds to cut back on riskier positions.
Investors will also be keeping a wary eye on the bond market, where US Treasury yields are rising again.That’s a sign the markets are anticipating higher inflation, growth, and more pressure on central banks to wind back their stimulus measures.Also coming up today It’s quite a busy day for economics data.New consumer confidence data from France, and the wider eurozone, will show how the rise in Covid-19 cases and slow vaccine rollout is affecting morale.
Plus, new inflation data from Germany and Spain are likely to show that prices jumped this month, partly driven by energy pices.This afternoon, the latest US house price survey is likely to show another rise, while consumer confidence in the States may also have risen.The agenda – 7.45am BST: French consumer confidence for March – 8am BST: Spanish inflation and retail sales data – 10am BST: Eurozone consumer and business confidence report for March – 1pm BST: German inflation data for March – 2pm BST: US house price index for January – 3pm BST: US consumer confidence report for March Updated.
