US and European equity futures wiped out gains and the dollar fluctuated as investors weighed efforts to safeguard the global banking system. The two-year Treasury yields retraced an earlier rebound.
(Bloomberg) — US and European equity futures wiped out gains and the dollar fluctuated as investors weighed efforts to safeguard the global banking system. The two-year Treasury yields retraced an earlier rebound.
Positive early readings on UBS Group AG’s agreement to buy Credit Suisse Group AG and central bank moves to boost dollar liquidity gave way to a more cautious sentiment as the trading day progressed.
Financial stocks in Asia slid, led by HSBC Holdings Plc, whose shares dropped more than 6% in Hong Kong on concern over risky bond exposures related to Credit Suisse. The additional tier-1 bonds issued by some Asian banks fell by a record after a Swiss regulator earlier said $17 billion of such AT1s from Credit Suisse would be wiped out.
Equities benchmarks for Australia, Japan and Hong Kong extended declines. Contracts for the S&P 500 gave up all of its gain for Monday after the US index dropped in excess of 1% on Friday, dragged down by the financial sector.
A dollar gauge swung between small gains and losses. Currencies including the yen, the Australian and the New Zealand dollars dropped in a choppy trading. The Swiss franc and the euro also fluctuated.
The policy-sensitive two-year Treasury yield, which slumped over 30 basis points on Friday, erased an earlier rise of as much as 18 basis points. 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.”
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.
“It’ll take some time to digest the Credit Suisse news,” said Chamath De Silva, senior portfolio manager for BetaShares Holdings. “The broader equity market remains relatively stable, pinned by the competing forces of banking crisis-induced credit contraction and the potential stimulative effects of easier policy.”
Yield on the policy-sensitive three-year Australian bond slipped about 17 basis points to 2.85%, taking it further below the Reserve Bank’s 3.6% cash rate.
Elsewhere in markets, Bitcoin fell slightly from its highest level since June. Oil and gold dropped.
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
These are the main market moves:
Stocks
- S&P 500 futures were little changed as of 1:42 p.m. Tokyo time. The S&P 500 fell 1.1% on Friday
- Nasdaq 100 futures were little changed. The Nasdaq 100 fell 0.5%
- Euro Stoxx 50 futures fell 0.3%
- Japan’s Topix index fell 1.4%
- Hong Kong’s Hang Seng Index fell 2.6%
- China’s Shanghai Composite Index rose 0.1%
- Australia’s S&P/ASX 200 Index fell 1.4%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.0667
- The Japanese yen was little changed at 131.89 per dollar
- The offshore yuan fell 0.3% to 6.9067 per dollar
- The Australian dollar fell 0.2% to $0.6683
- The Swiss franc was little changed at 0.9262
Cryptocurrencies
- Bitcoin fell 1.8% to $27,461.25
- Ether fell 2.4% to $1,756.34
Bonds
- The yield on 10-year Treasuries was little changed at 3.43%
- Japan’s 10-year yield declined two basis points to 0.25%
- Australia’s 10-year yield declined 13 basis points to 3.26%
Commodities
- West Texas Intermediate crude fell 0.8% to $66.21 a barrel
- Spot gold fell 0.8% to $1,973.56 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Victoria Cavaliere, Jonathan Ferro, Lisa Abramowicz, Kurt Schussler and Georgina Mckay.
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