European stocks fell and US equity futures retreated as the emergency weekend sale of Credit Suisse Group AG to UBS Group AG failed to soothe market jitters over the health of the banking system. Investors turned to the safest assets, spurring gains in Treasuries, while gold rose on haven demand.
(Bloomberg) — European stocks fell and US equity futures retreated as the emergency weekend sale of Credit Suisse Group AG to UBS Group AG failed to soothe market jitters over the health of the banking system. Investors turned to the safest assets, spurring gains in Treasuries, while gold rose on haven demand.
The Stoxx Europe 600 index dropped 1%, with a sub-index of banking stocks sliding more than 3% to wipe out its gains for the year. UBS shares fell 13%. Contracts on the S&P 500 and the Nasdaq 100 slipped by at least 0.4%. A gauge of Asian shares fell by more than 1%.
Policymakers are rushing to shore up confidence after the problems at Credit Suisse and the collapse of Silicon Valley Bank added to broader concerns over financial stability. The Federal Reserve and five other central banks announced coordinated action to boost liquidity in US dollar swap arrangements to ease strains in the global financial system. Traders are also assessing what impact recent events will have on Fed policy in the runup to its next rates decision due Wednesday.
“Defuse one potential time bomb in the banking sector and another seems to start its countdown,” said Danni Hewson, AJ Bell head of financial analysis. “Despite an emergency deal to offload the troubled Credit Suisse on its national counterpart, markets are still unhappy.”
The anxious start to the trading week prompted a flight to safety, sending German and UK government bonds higher. The policy-sensitive two-year Treasury yield fell 13 basis points, while 10-year yields dropped to the lowest since September. Gold rose above $2,000 an ounce for the first time in more than a year.
Credit Suisse’s AT-1 notes will become worthless as a result of the use of public funds for the rescue, potentially sending the $275 billion market for bank funding into a tailspin. The Swiss National Bank is offering liquidity assistance to UBS while the government is granting a guarantee for potential losses from assets UBS is taking over.
A measure of dollar strength swung between small gains and losses. The Swiss franc and the euro fluctuated. Oil sank, with US benchmark West Texas Intermediate plunging below $65 a barrel to hit the lowest level since late 2021, while copper also dropped after failing to hold an early gain.
Meanwhile, Morgan Stanley strategist Michael Wilson said the stress in the banking system marks what’s likely to be a painful and “vicious” start of an end to the bear market in US stocks.
While some investors may view the back-stopping of bank deposits in the US as another form of quantitative easing and therefore “risk on,” his team disagrees, according to Wilson, who correctly predicted the selloff in stocks last year and rebound in October. “We argue it’s not, and instead represents the beginning of the end of the bear market as falling credit availability squeezes growth out of the economy.”
The S&P 500 will remain unattractive until equity risk premium climbs to as high as 400 basis points from the current 230 level, according to Wilson, who is known for being one of Wall Street’s staunchest bears.
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, amid the heightened financial instability and a softer-than-forecast reading on inflation expectations on Friday. 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.
“Our best guess is that the Fed would still like to hike by 25 basis points and try to make it clear to the market that rate hikes are still focused on getting inflation back under control,” Brad Gibson, head of Asia Pacific fixed income at AllianceBernstein L.P., said on Bloomberg Television.
Elsewhere in markets, Bitcoin edged higher.
Key events this week:
- ECB President Christine Lagarde appears before European Parliament’s economic committee, Monday
- US existing home sales, Tuesday
- US Treasury Secretary Janet Yellen to appear at Senate subcommittee hearing, Wednesday
- FOMC rate decision, news conference from Chair Jerome Powell, Wednesday
- EIA crude oil inventory report, Wednesday
- Eurozone consumer confidence, Thursday
- BOE interest rate decision, Thursday
- Swiss National Bank rate decision and press conference, Thursday
- US new home sales, initial jobless claims, Thursday
- US Treasury Secretary Janet Yellen testifies to a House Appropriations subcommittee, Thursday
- Eurozone S&P Global Eurozone Manufacturing PMI, S&P Global Eurozone Services PMI, Friday
- US durable goods, Friday
Some of the main moves in markets:
Stocks
- The Stoxx Europe 600 fell 1% as of 8:11 a.m. London time
- S&P 500 futures fell 0.7%
- Nasdaq 100 futures fell 0.4%
- Futures on the Dow Jones Industrial Average fell 0.8%
- The MSCI Asia Pacific Index fell 1.1%
- The MSCI Emerging Markets Index fell 1%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.0664
- The Japanese yen rose 0.7% to 130.90 per dollar
- The offshore yuan was little changed at 6.8900 per dollar
- The British pound rose 0.2% to $1.2199
Cryptocurrencies
- Bitcoin rose 1.2% to $28,322
- Ether rose 0.2% to $1,803.1
Bonds
- The yield on 10-year Treasuries declined 11 basis points to 3.32%
- Germany’s 10-year yield declined 14 basis points to 1.97%
- Britain’s 10-year yield declined 10 basis points to 3.18%
Commodities
- Brent crude fell 2.7% to $71.02 a barrel
- Spot gold rose 0.5% to $1,999.99 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Kurt Schussler, Georgina Mckay and Allegra Catelli.
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