Hello and welcome to our continued coverage of the global economy, financial markets, euro area and business.
The shock implosion of Archegos Capital is weighing on the markets today.
How many billions of dollars will be lost, and how could a single, obscure family office create such huge and leveraged positions – and trigger a collapse that has gripped Wall Street, the City and other financial markets across the world?
News that Archegos melted after failing to respond to a wave of margin calls from its major lenders gained global attention yesterday, with Nomura and Swiss credit both admitting to having suffered significant losses.
Overnight, Archegos, led by investor Bill Hwang, broke its silence.
In a statement, the spokesperson for the company Karen Kessler told me:
“These are difficult times for the Archegos Capital Management family office, our partners and our employees.
All plans are being discussed as Mr. Hwang and the team determine the best way forward. ”
It is also a difficult time for Archegos brokers. Reuters reports global banks could lose more than $ 6 billion in debacle.
It all started when the actions of ViacomCBS, a media company heavily backed by Archegos with borrowed money, collapsed last week after issuing new shares. This prompted call lenders to seek more collateral from Archegos to support its leveraged positions.
When he couldn’t answer those margin calls, blue chip brokers began liquidating trades in a $ 20 billion sale – with Nomura and Credit Suisse seemingly suffering the damage (their stocks collapsed. yesterday).
As Jim Reid of Deutsche Bank explains:
The most severe impact was actually suffered by non-U.S. Banks, with Nomura (-16.33%) recording its largest daily decline and Credit Suisse (-13.83%) experiencing its worst performance besides a year,
Regulators are also monitoring the situation closely, concerned about the repercussions of the forced liquidation of Archegos.
The United States Securities and Exchange Commission said Monday it “has been monitoring the situation and communicating with market participants since last week.”
Japanese chief cabinet secretary Katsunobu Kato said the Japanese government was closely monitoring the situation in Nomura and the Financial Services Agency would share information with the Bank of Japan.
Swiss financial regulator Finma said it was also monitoring the situation and warned that several banks and international sites were involved.
As a “family office” (essentially managing the money of founder Bill Hwang), Archegos did not have to follow the usual regulatory disclosures that hedge funds must follow.
And traders are hopeful that the fund’s collapse won’t trigger a wider crisis.
Like Kyle Rodda from IG the dish:
Market commentary remains focused on the drama surrounding the collapse of Archegos Capital Management in the United States, as market participants attempt to distinguish the impacts of failure and the potential for greater financial contagion.
Despite all the concern, however, for the moment, apart from some localized pain in some large financial stocks, particularly in Japan, where stocks in this country struggled in the face of the episode, the risks on a systemic scale. still seem weak.
But even though the short-term damage can be contained, the episode put hedge funds and their use of leveraged positions in the spotlight. Investment banks could tighten their credit limits, which could force some hedge funds to reduce their riskier positions.
Investors will also be keeping a cautious eye on the bond market, where yields on US Treasuries are rebounding higher. This is a sign that markets are anticipating increased inflation, growth and pressure on central banks to revert to their stimulus measures.
Also coming today
It’s a pretty busy day for the economic data.
New data on consumer confidence in France and the wider euro area will show how the increase in Covid-19 cases and the slow rollout of vaccines are affecting morale. Moreover, new inflation data in Germany and Spain should show that prices have jumped this month, in part due to energy prices.
This afternoon, the latest US house price survey is expected to post a further rise, while consumer confidence in the United States may have risen as well.
- 7.45 a.m. BST: French consumer confidence in March
- 8am BST: Inflation and Retail Sales Data in Spain
- 10 a.m. BST: Eurozone consumer and business confidence report for March
- 1 p.m. BST: German inflation data for March
- 2 p.m. BST: US House Price Index for January
- 3 p.m. BST: US Consumer Confidence Report for March