STIR: Cuts Pared But Still Only Fully Pricing Next Move In Oct

The SNB is working on introducing a new liquidity support framework, centred on the Extended Liquidity Facility (ELF). The ELF encompasses [the previous] Extended Liquidity Assistance (ELA) and brings liquidity support closer to standard operations, SNB Vice Chairman Martin highlights today at a speech in Geneva.

• "A key objective of the ELF is to enhance banks' access to liquidity while reducing the stigma that can be associated with such support. It allows simplified access to limited liquidity volumes, while maintaining the same requirements as under ELA for larger volumes."
• "Regulatory efforts to strengthen banks' resilience to liquidity risk are also underway. Important initiatives include increasing banks' own liquidity provisions, introducing a minimum collateral requirement for central bank support, and anchoring a Public Liquidity Backstop in law. Together, these measures will enhance the ability of banks to withstand liquidity crises."
• "The SNB's emergency liquidity assistance (ELA) framework was first formalised in 2003, incorporating lessons learned from past financial crises. This framework established three conditions for liquidity assistance: only against sufficient collateral, only to solvent banks, and only to banks or groups of banks deemed relevant for financial system stability. In 2023 and 2024, the SNB publicly announced an expansion of its framework, extending access to liquidity support to all banks in Switzerland, using mortgages and securities as collateral."
• The previous ELA was used by Credit Suisse in March 2023, support totalled to CHF168bln, against collateral including mortgages and a federal guarantee. By the end of 2023, most loans under the scheme were repaid following the merger with UBS.

The Dallas Fed's Texas Service Sector Outlook Survey showed regional services firms' pessimism continued to deepen in April, echoing other regional Fed surveys for the month.

• The general business activity index fell to -19.4 ( -11.3 prior), an 18-month low. 6-month expectations fell to -16.0 (-1.1 prior), a 34-month low.
• As with the Texas manufacturing survey counterpart, the main measure of current activity actually ticked higher (revenue index up 3 points to 3.8, "indicating a small increase in revenue"), however employment weakened and, as noted, forward-looking indicators were very weak.
• Per the report, "the future revenue index dropped 14 points to 16.8, the lowest reading since mid-2020. Other future service sector activity indexes such as employment and capital expenditures also fell but remained in positive territory, reflecting expectations for slower growth in the next six months."
• The inflation readings also ticked higher: current prices paid rose to 32.5 (14-month high) from 27.0, with prices received ticking up to a more modest 4-month high 8.4 from 5.2.
• Anecdotes were broadly negative, mainly citing tariffs - and as we reported previously in our overview of the Manufacturing survey, special questions (which covered the manufacturing, services and retail survey respondents) pointed to significant concerns over tariff implications.
• As a side note, the Texas Retail Outlook Survey - a component of the broader Services survey - showed retail sales activity improved in April, corroborating some signs elsewhere that retail activity to start the quarter (ie Johnson Redbook index) was solid despite sharply weaker sentiment.

• Stocks are holding firmer, top end of mostly narrow ranges ahead midday, DJIA outperforming SPX eminis and Nasdaq indexes. Currently, the DJIA trades up 294.25 points (0.73%) at 40522.85, S&P E-Minis up 21.5 points (0.39%) at 5574.25, Nasdaq up 43.1 points (0.2%) at 17409.22.
• Materials and Health Care sectors outperformed in the first half, chemical makers buoyed the former with Sherwin-Williams +5.04%, Ecolab +2.01%, Mosaic +1.83%, Albemarle +1.69% and International Flavors & Fragrances +1.07%.
• Pharmaceutical makers buoyed the Health Care sectors: Pfizer +3.51% after announcing cost cutting measures as quarterly revenues decline, Merck & Co +2.19%, Amgen +1.45%, Danaher +1.30% and Viatris +1.27%.
• Conversely, Energy and Consumer Discretionary sectors underperformed in the first half, oil & gas stocks weaker with crude lower (WTI -1.37 at 60.68): APA -1.87%, Texas Pacific Land -1.14%, Targa Resources -1.07%, ConocoPhillips -0.97% and Devon -0.82%
• Meanwhile, travel & resort related stocks retreated: Caesars Entertainment -3.24%, MGM Resorts Int -2.20% and Carnival -1.94%.
• Latest earnings expected after the close: Booking Holdings, Mondelez International, Caesars Entertainment, Seagate, Starbucks, Frontier Communications, Expand Energy, Fair Isaac, Visa, BXP, PPG, Edison Int, ONEOK, First Solar, CoStar Group and Snap Inc.