View of the Credit Suisse UK offices in Canary Wharf, London.
Yui Mok | Pa Images | Getty’s paintings
U.S. stock futures were flat on Monday as investors assessed the state of the worldwide banking system after the Swiss government orchestrated the forced takeover of Credit Suisse by UBS, marking the newest effort by governments around the globe to quell the crisis threatening the banking sector.
Dow Jones industrial average futures contracts they were last by 29 points or 0.09%. S&P 500 futures contracts increased by 0.12 percent, while Nasdaq-100 Futures advanced 0.09%.
Regional banks continued to be under pressure to bolster their deposit bases after the collapse of Silicon Valley Bank earlier this month. Wall Street expects further motion could also be needed to revive confidence within the banking system after US regulators per week ago blocked uninsured SVB deposits and offered fresh funding to distressed banks.
Instability within the financial sector over the past two weeks has raised the stakes on the Federal Reserve’s rate of interest decision on Wednesday. Based on data from Monday morning, there’s a few 57% probability of a quarter-point rate hike by the Fed CME group data using fed fund futures contracts as a guide. The opposite 38% are within the no-raise camp, predicting that Chairman Jerome Powell may begin to ease his aggressive tightening campaign that began in March 2022 amid the looming financial contagion.
UBS has agreed to purchase Credit Suisse for 3 billion Swiss francs, or $3.2 billion, and the combined bank could have $5 trillion in assets. Credit Suisse shares fell 21% last week. Shortly after UBS announced the acquisition, Fed announced joined other central banks in a joint liquidity operation. A gaggle of central banks – including the Bank of Canada, Bank of England, Bank of Japan, European Central Bank and Swiss National Bank – have agreed to extend the frequency of their US dollar swap line contracts from weekly to every day.
Based on B. Riley Wealth Management’s chief market strategist, Art Hogan, UBS’s takeover of its beleaguered rival is “unequivocally good for overriding concerns concerning the stability of the worldwide banking sector.”
But traders might want regulators to do more to stem the decline in regional banks. First Republic shares fell 17% on Monday ahead of the market after losing 72% last week. The declines followed even after a gaggle of banks on Thursday pledged to deposit $30 billion for at the very least 120 days at a beleaguered San Francisco-based institution. The SPDR Regional Banking ETF (KRE) fell 14% last week.
Despite the anxiety around bank stocks, S&P 500 AND Nasdaq Composite it closed up through the week as investors turned back to tech stocks that may benefit from lower rates of interest. Meanwhile, the Dow fell 0.15% over the week.
“I believe there was an overreaction to regional banks. … And that probably represents a possibility,” said Hogan.
“As we enter the brand new week, we’re more likely to see a proposal for each the massive money center banks and the energy complex as I believe there have been some serious overreactions within the market,” added Hogan.