A frenetic weekend in finance was met with comparatively small but mostly positive moves in markets Monday, with U.S. and European equity futures rising and a dollar gauge weakening slightly.
(Bloomberg) — A frenetic weekend in finance was met with comparatively small but mostly positive moves in markets Monday, with U.S. and European equity futures rising and a dollar gauge weakening slightly.
Early readings on UBS Group AG’s agreement to buy Credit Suisse Group AG and central bank moves to boost dollar liquidity suggested sentiment was turning for the better. Two weeks featuring multiple US bank failures followed by more problems at Credit Suisse had added to the rising conviction that global economies will struggle.
Euro Stoxx 50 futures added more than 1% and contracts for the S&P 500 rose more than 0.5% after the US index dropped more than 1% on Friday, dragged down by the financial sector. Contracts for the Nasdaq 100 gained around 0.6% after the gauge notched its best week since November with a jump of 5.8%, despite a slump Friday.
Technology stocks, which often benefit from lower interest rates, have been supported by concern that the turmoil in the banking sector will tip the global economy into recession, in turn forcing central banks to reverse course on monetary tightening.
An index of the dollar strength fell 0.2%, the Swiss franc fell slightly, the yen weakened and the risk-sensitive Australian dollar made small gains. Oil rose and gold fell from a one-year high in more signs of positive risk sentiment. Still, equities benchmarks for Australia and Japan declined.
The policy-sensitive two-year Treasury yield, which slumped over 30 basis points on Friday, swung higher while remaining just below 4%. Traders are trying to assess the Federal Reserve’s next move amid the recent financial instability and a softer-than-expected reading on inflation expectations.
Much of the debate in markets is now focused on whether the Fed will deliver another quarter-point hike or pause at its March 21-22 meeting. Traders no longer see much chance of a bigger half-point hike that Chair Jerome Powell had put on the table just before concerns about financial stability emerged.
JPMorgan Asset Management Chief Investment Officer Bob Michele said the effects of quantitative tightening by the Fed were starting to bite and he was now “more confident that we are headed to recession.”
“This is still the start of this taking hold. For sure it’s going to slow growth. For sure it’s going to take down inflationary pressures,” he said on Bloomberg Television. “The Fed doesn’t have to raise rates on Wednesday. The market’s going to do the credit tightening for them.”
Some, however, shared a different view.
“It is not at all clear that avoiding a rate hike would even help address the financial troubles in the banking system,” said Gerard MacDonell of 22V Research. “For the Fed to hold off on Wednesday might send a signal of panic. It might also lead to a further intensification of inflation pressures and more bond market volatility down the road.”
Meanwhile, yields on Australian and New Zealand bonds fell after rates dropped across the curve in the US debt market on Friday.
Policymakers are rushing to shore up confidence after the collapse of Silicon Valley Bank and problems at Credit Suisse added to broader concerns over financial stability.
UBS’s government-backed takeover of Credit Suisse seeks to address client outflows and a massive rout in the target’s stock and bonds.
The Fed and five other central banks announced coordinated action to boost liquidity in US dollar swap arrangements to ease strains in the global financial system.
Elsewhere in markets, Bitcoin traded near its highest level since June amid a broad rally in cryptocurrencies.
These are the main market moves:
Stocks
- S&P 500 futures rose 0.8% as of 9:28 a.m. Tokyo time. The S&P 500 fell 1.1% on Friday
- Nasdaq 100 futures rose 0.6%. The Nasdaq 100 fell 0.5%
- Euro Stoxx 50 futures rose 1.1%
- Japan’s Topix index fell 0.2%
- Australia’s S&P/ASX 200 Index fell 0.4%
- Hong Kong’s Hang Seng futures fell 1.7%
Currencies
- The Bloomberg Dollar Spot Index fell 0.2%
- The euro rose 0.1% to $1.0685
- The Japanese yen fell 0.5% to 132.47 per dollar
- The offshore yuan was little changed at 6.8829 per dollar
- The Australian dollar rose 0.4% to $0.6721
- The Swiss franc fell 0.1% to 0.9272
Cryptocurrencies
- Bitcoin rose 0.4% to $28,077
- Ether fell 0.9% to $1,783.85
Bonds
- The yield on 10-year Treasuries advanced six basis points to 3.49%
- Australia’s 10-year yield declined five basis points to 3.35%
Commodities
- West Texas Intermediate crude rose 0.5% to $67.05 a barrel
- Spot gold fell 0.6% to $1,976.95 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Katie Greifeld, Isabelle Lee, Victoria Cavaliere, Jonathan Ferro and Lisa Abramowicz.
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