Fundamental Analysis Monday 27 March 2023

Author: Steve Tee

Germany & Switzerland

Contagion has infected the largest economy in Eurozone, which is Germany. As mentioned, no one is running away from this tumble because of how interconnected every party are in today’s globalized world. Deutsche bank share plunged approximately 15% last week Friday, spectating a wipeout of close to $3 Billion of its market value. Credit default swap shot up by 220 basis points, which is the highest since 2018 based on report. The higher the default swap rate, the riskier the bank is to be insured. Yet, ECB and SNB is hiking rates in tandem with The Fed, further inflicting more pain into the economy. Credit Suisse is now trading below $1 per share and ever since UBS’s buy over plus SNB’s $100 Billion Swiss Franc liquidity injection, this are getting from bad to worse. Very soon, the other Eurozone countries will begin to feel the heat as the financial institution and system crumbles.


The $31 Trillion national debt ceiling issue is yet to be resolved, creating a bigger time bomb as time goes by. 2 Year Treasury bond yield is falling, now below 4% and the 10 year below 3.5%. Investors are dumping their US Bonds as their trust and confidence erodes. Banks are forced to sell their bond holdings for liquidity, at a lost as depositors continue to withdraw, again losing trust and fearful of further bank collapse. We now will see spikes in deposits in the top banks e.g. Citibank, JP Morgan, Morgan Stanley, Bank of America and Goldman Sachs because the public view them as safer banks due to their market standing and the notion of “too big to fail”. However, sadly with more deposits, the banks will have to lend it out and earn an interest. Credit lending requirements are getting tighter, interest is high which increase cost of borrowing, and consumer and corporate debt is so high. Plus, the commercial mortgage-backed securities will get hit next as layoffs continues, office occupancy drops, more foreclosure and defaults take place, as reported by Market Insider. The big one is coming soon, which is real estate sector.