Danske Bank economists maintain their strategic case for a lower EUR/USD , predicting the pair to reach 1.02 in the next six-to-twelve months. They argue that this will be driven by tighter financial conditions, relative rates, and asset demand, along with new energy and real rate shocks. In this article, we will explore Danske Bank's reasoning for this forecast and the potential implications for traders and investors.
A lot of talk on who is to blame for the SVB Financial collapse – this is the first big casualty of rapid rate hikes and tighter policy, but who is to blame and what are the next steps?
-SVBs management – they invested short-term deposits in longer term fixed income assets – where a large % of its $120b securities portfolio lacked any kind of interest rate hedge (payers swaps were clearly needed)
-SVBs management – In the past 8 months SVB had no risk manager - fortune.com/2023/03/...-chief-risk-officer/ - no one knows how they efficiently managed risk
-SVBs management – the accounts showed they held $91b of its $120b securities in its HTM (assets Held to Maturity) book – these are assets they intend to hold until maturity but the accounting rules detail, that they don’t need to mark-to-market the moves in the underlying and report the ballooning losses – which again were not hedged.
-SVB deposit mix - 93%+ were above the FDIC insurance limit – this makes depositors v sensitive to any capital concerns at the bank
-SVB deposit mix - VCs had a rapid cash burn, as projects they back are typically driven by changes in interest rates (think Net Present value and Internal rates of return) – depositors took cash off SVB’s balance sheet to fund operations – SVB subsequently had to sell assets as their liabilities fell – we then see realised losses from buying securities at much higher prices.
-Short sellers/investor base – shorts had an eye on unrealised losses from the worsening asset quality for weeks – the selling accelerated when the CEO/ CFO /CMO disclosed they’d sold a chunk of stock on 27 March – it was over when the SVB took a $1.8b hit on its AFS securities available for sale on Wednesday – management sold $21b of its $28b book and announced a $2.25b in equity/debt raising - investors knew with conviction that depositors were fleeing – who supports a raising when liabilities are falling – no one sensible, raising pulled
-The Fed - failing to know such a shift in rates would impact banks asset quality when its primary function is financial stability.
-Regulation - Basel 3 - banks being forced to buy govt paper against deposits - v low risk weighting (perhaps required a hedge
Hard to pinpoint this on one aspect IMO - I think there is a perfect storm going on – a lack of hedging of interest rate risk was clearly a dominant factor behind this. Top down this is a function of rapidly tightening monetary policy and the impact this had on both the asset quality and liability side of the balance sheet – we should recall SVBs model is not the same as others in the banking space, so its hard to say this is systemic – still we wait for the outcome on next steps on how deposits over $250k will be dealt with – we’re hearing they may get 50% back initially but a buyer would be the best solution
The issue for regional/smaller banks comes if is we see some sort of haircut on the deposits claim over $250k – that could see a loss of confidence in holding deposits with other smaller banks names – we shall hear more soon, but broad contagion through the financial system seems unlikely, but it is a possibility given nearly 1/3 deposits in the banking system are uninsured – any bank with a large asset base and low equity are in the spotlight
As said Friday this could be a nothing burger or have real impactions on economics - the big issue happens this week if we see no clarity on how depositors are dealt (seems unlikely) with and we get a hot CPI print
GBPUSD broke out of the descending channel .
Hello traders ,what do you think about USDJPY ?We expect this pair to drop at least to the specified zone after the pullback to the broken level.
If this post was useful to you, do not forget to like and comment.❤️ Hy dear Members . Hope you all are enjoying our ideas and analysis. Now we are here to discuss about GBPUSD . GBPUSD is breaking falling Wedge Pattern. And this wedge indicates that we will get a Bullish wave after this.
Here it has maximum Chances we can see a good Bullish wave.
We can see price around 1.27 soon. As this is daily chart so we can see small Retesting but overall we will see a good Bullish wave. Keep in touch we will update further soon.
Hello traders ,what do you think about GBPUSD? This pair has reached an important resistance zone . We expect it to fall to the specified zone with a little fluctuation in this area