Your Morning Routine: Five Things to Know‍

The largest shareholder of Credit Suisse's chairman resigns, the US considers increasing bank support, and a Federal Reserve official raises the possibility of a recession. Aquino, Kristine

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SVB, Credit Suisse

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Only days after making statements that contributed to a decline in the Swiss lender Credit Suisse, the head of Saudi National Bank, Credit Suisse's largest shareholder, resigned. According to an announcement released on Monday, Ammar Al Khudairy is resigning "for personal reasons." Separately, according to Finma, Switzerland's banking regulator, Credit Suisse faces the danger of a possible investigation and disciplinary measures over how great executives operated the bank before to its collapse. First Citizens agreed to buy out Silicon Valley Bank in the US as part of a deal that also included the purchase of approximately $72 billion in SVB assets at a $16.5 billion discount. 

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Bank Backing

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According to persons with knowledge of the issue, US regulators are considering increasing an emergency loan facility for banks in a way that'd give First Republic Bank additional time to strengthen its balance sheet. An increase of the Federal Reserve's service is just one of the options being considered at this early stage, but officials have not yet decided what support, if any, they could offer First Republic. Watchdogs believe First Republic to be stable enough to function even without taking that step.

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Recession Alert

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Neel Kashkari, president of the Minneapolis Fed, claimed that current bank upheaval has raised the possibility of a US recession. "How much of these financial pressures are causing a generalized credit constraint is unclear to us. Would that cause the economy to weaken? In an interview with CBS's "Face the Nation," Kashkari, a voter on fiscal policy this year, said: "This is something that we're monitoring very, very closely." Before this month's bank failures and market chaos, Kashkari had suggested that the Fed raise rates to about 5.4% from its current target range of 4.75% to 5% and hold people there until inflation slowed.

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Futures retrace.

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As of 5:38 a.m., S&P 500 futures had increased 0.3%. while Nasdaq 100 futures rose 0.1% in New York. The Group of 10 currencies traded in a variety of ways due to little movement in the Bloomberg Dollar Index. Treasury yields increased throughout the curve, containing some of the decline from last week. Bitcoin increased for a second straight day as oil increased and gold declined.

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Yield Spiral

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The yield curve's 2-10 range has resumed steepening over the past few days. Although it has increased by about 80 percentage points since early March, it is still significantly inverted.

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But just because the curve is inverting more deeply doesn't imply the opposite is reassuring. Short term rates (the 2s component) have been falling as investors anticipate that the Fed will soon begin cutting rates since it has stopped increasing rates. This has caused the direction to reverse.

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The un-inversion actually occurs before each recession, despite the fact that everyone refers to the inversion as a downturn signal (why and whether it actually works is a topic for another discussion, someplace else).

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Every official recession that has been proclaimed in the past 40 years (shown by red bars) has been accompanied by a sharp re-steepening of the curve as investors rushed to price in decreases in the brief rate before the downturn.

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We are all aware of the arguments around this specific situation. The future of the banking sector's problems is yet uncertain. The extent to which the banking shocks we have already experienced will inhibit growth is still unknown. Also, just outside of SVB, there are a variety of clear-cut areas (labor market), murky areas (residential housing), and ominous clouds. In any case, the yield curve shows indications that it is acting in the same manner that it typically does well before red bar.

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