Swissquote Bank: ECB decides, as Credit Suisse reveals Archegos loss

April 22, 2021

By Ipek Ozkardeskaya, Senior Analyst at Swissquote Bank

JPMorgan-backed Super League has ended up being a super flop, as football fans didn’t appreciate the idea that money could buy merit, especially in a sport which is not necessarily destined to the rich. The idea survived less than three days, the majority of the clubs left the deal and apologized to their fans.

JP Morgan which was prepping to put 4 billion euros in the realization of a less-than-brilliant project got its name involved in a bad controversy. Yet, there will probably be little-to-no consequence for the stock investors as JPMorgan is not active in the European retail banking, but it could see some backlash against its plan to launch a digital-only retail business in the UK later this year.

If a misstep in football wouldn’t cost JPMorgan much, the Archegos saga has likely costed Credit Suisse an arm and a leg. Investors have their full attention on Credit Suisse earnings. Credit Suisse took a $4.7 billion hit from the Archegos drama, and the bank is expected to announce a pre-tax loss of 900 million francs.

Without Archegos, Credit Suisse was, as its major US peers, on course for a historical quarter in terms of performance. Yet, Swiss banking sector remains under the pressure of a strong franc, the collapse of the banking secrecy which has certainly taken some shine off the traditional Swiss banking’s image in the long run and Swiss banks preparing to reflect the negative rates on their clients, a step that could weigh on their revenues in the medium term.

On the macro front, the European Central Bank (ECB) gives its latest monetary policy decision today and is expected to maintain its ultra-lose monetary policy unchanged. The ECB had announced to frontload the PEPP purchases to give the necessary support to the pandemic-ravaged economies at the previous meeting.

Despite the vaccine rollout and the reopening of economies, the European economies remain in need of solid support, and the ECB will continue giving this support to its member states.

ECB Chief Christine Lagarde has one important task at this meeting: to avoid waking the ECB hawks and remain as dovish as possible despite the positive inflationary pressures globally, and the positive push on the yields front. Lagarde needs to buy some more time until the vaccination campaign shows its positive results and reopening happens for good.

Eurozone’s relatively low inflation environment provides a strong case for maintaining an ultra-supportive monetary policy in place. The latest figures confirm that inflation in Europe remains under control, as the euro appreciation may have compensated a part of the higher raw material prices on international markets, or the lack of demand didn’t allow producers to pass higher production costs on to their consumers just yet.

As a result, the divergence between the dovish ECB expectations and hawkish Fed, BoE expectations should weigh on the single currency in the medium run..

The CFTC data shows a gradual ease in long euro speculative positions and the potential for a further unwind should help pulling the euro lower against the greenback and the pound in the coming weeks. A sufficiently dovish accompanying statement from the ECB could push the EURUSD back toward 1.17, and the EURGBP back to 0.85 mark.