Weekly Market Update - 3 October 2022

Five-Year Credit Default Swaps

Credit Suisse’s five-year credit default swaps — a gauge of credit risk — rose to a record while its stock hit a fresh low after the bank’s attempts to reassure markets on its financial stability backfired. Chief Executive Officer Ulrich Koerner had sought to calm employees and the markets over the weekend only to see his carefully-worded memo have the opposite effect. While touting the bank’s capital levels and liquidity, he acknowledged that the firm was facing a “critical moment” as it worked toward its latest overhaul. The bank sent around talking points to executives dealing with clients who brought up the swaps, according to people with knowledge of the matter.

Source: Bloomberg

Mini-Budget U-Turn

Prime Minister Liz Truss dropped a plan to cut taxes for the UK’s highest earners just 10 days after it formed a key part of the mini-budget that sent markets into a tailspin. Investors initially welcomed the news, with the pound and government bonds climbing, but those moves quickly unwound. The future is looking uncertain too --options markets are still showing bearish bets, and “the market continues to view the government having something of a fiscal credibility deficit,” according to CIBC's Jeremy Stretch.

Source: Bloomberg

Hurricane Ian

Ian, now a hurricane again, is threatening to carve a new path of destruction through South Carolina on Friday when it roars ashore north of Charleston. Biden declared an emergency exists in South Carolina, authorizing the Federal Emergency Management Agency to provide equipment and resources to the state. Ports in Florida that are still shut will reopen by Saturday, and the state is trucking in food, water, ice, blankets, tarp and pet supplies to help people devastated by the storm. Ian’s aftermath is even harder to fix, with supply chains in tatters.

Source: Bloomberg