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Investors say the banking crisis is far from over even after UBS’s Credit Suisse deal


(Bloomberg) — Investors and strategists say turmoil in global financial markets remains a possibility even after UBS Group AG agreed to take over Credit Suisse Group AG and announced announced new dollar liquidity measures among central banks.

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The key event this week will be the Federal Reserve’s policy decision on Wednesday, with markets waiting to see if the recent turmoil in global markets convinces policymakers. US policy to stop raising interest rates or not.

Here’s what some in the market had to say as trading resumed in Asia on Monday:

Ed Yardeni, president of Yardeni Research Inc.:

“The current banking crisis will probably not be as severe as the GFC. However, it can trigger a recession if it causes an economy-wide credit crunch. Whether that is the question we are currently grappling with,” he wrote in a research note.

“We have not yet increased the likelihood of a recession, but we may have to if we see signs that the Fed’s efforts to stabilize the current banking crisis are not working.”

Win Thin, global head of currency strategy at Brown Brothers Harriman & Co:

“The Credit Suisse deal along with the swap line news has eased tensions for now. But I think the First Republic and the other regional banks are still unstable and so I’m not sure we can clear things up right now.”

Gregory Peters, co-investment director of PGIM Fixed Income:

Fed “pause is probably the appropriate response. In an interview with Bloomberg Television, he said in an interview with Bloomberg Television. “Central banks around the globe are really focusing on the risk of contagion and making the system work. Whether that translates into a different pricing policy is the question under discussion.”

“Everybody expects this reshuffle to bring down the economy and bring inflation, but if that doesn’t happen, that’s a completely different outlook and that changes the whole trajectory. of the Fed curve.”

Gerard Macdonell, senior managing director at 22V Research LLC in New York:

“The Fed delay on Wednesday could send a signal of panic. It could also lead to increased inflationary pressures and more bond market volatility going forward.”

“The idea of ​​the Fed pausing even when they realize they have to go further then doesn’t seem convincing.”

“It is not clear that avoiding rate hikes will even help solve the financial troubles in the banking system.”

Strategists include Derek Tang at LHMeyer/Monetary Policy Analysis:

“The higher risk of a pause also suggests a higher risk that the FOMC will revise down or pause its balance sheet flows, especially if policymakers think recent tensions send a signal clear about reserve scarcity at the overall, system level rather than just at the individual bank level.”

Rodrigo Catril, strategist at National Australia Bank Ltd. In Sydney:

“Asia Pacific has watched these issues unfold in Europe and the US, so it will be difficult to draw any major market conclusions from our intraday price action.”

“The key will be how financial markets react to the news tonight, especially how the CoCo market reacts to the news that Credit Suisse CoCos has been completely wiped out,” he said, referring to the debt transfer. Bank reserves were recorded at the end of the week.

Analysts including Sharon Zollner and David Croy at Australia & New Zealand Banking Group Ltd:

“Central banks are trying to separate monetary policy and financial stability concerns, but that is easier in theory than in practice.”

Past over-stimulation, they said, is “coming home in more ways than just a result of inflation” and there is a risk that financial conditions could tighten to the point of causing “lower prices”. hard-wing to sharply reduce inflation”.

–With support from Matthew Burgess and Ruth Carson.

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