U.S. equity futures held small gains, the dollar fluctuated and Treasuries fell as investors weighed a frenetic weekend of efforts to safeguard the global banking system.
(Bloomberg) — U.S. equity futures held small gains, the dollar fluctuated and Treasuries fell as investors weighed a frenetic weekend of efforts to safeguard the global banking system.
Early readings on UBS Group AG’s agreement to buy Credit Suisse Group AG and central bank moves to boost dollar liquidity suggested sentiment maybe turning slightly 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.
Contracts for the S&P 500 gained about 0.3% after the US index dropped in excess of 1% on Friday, dragged down by the financial sector. The gains began to wane as the Asian trading morning continued. A jump of more than 1% in Euro Stoxx 50 futures was erased.
Contracts for the Nasdaq 100 also rose about 0.3% 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.
A dollar gauge swung between small gains and losses. The Swiss franc fluctuated, the yen declined and the risk-sensitive Australian dollar gave up much of an earlier advance in choppy trading.
Equities benchmarks for Australia, Japan and Hong Kong dropped. Finance stocks in the region slid, led by HSBC Holdings Plc, whose shares dropped 5% in Hong Kong as the Credit Suisse fallout hit the banking sector in Asia.
The policy-sensitive two-year Treasury yield, which slumped over 30 basis points on Friday, regained half of the decline at one point Monday to touch the 4% level, before easing back again. 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.”
The Fed is in “somewhat of a quandary,” according to Marc Franklin, senior portfolio manager for multi-asset solutions at Manulife Investment Management. “Given their need to continue to focus on price stability, you’re probably going to see them hike rates by 25 basis points,” he said on Bloomberg Television. The Fed may then “signal a need for data dependence” while acknowledging other criteria for future actions, he said.
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.
Even so, the additional tier-1 bonds issued by some Asian banks fell by a record during Asian trading hours on Monday. A Swiss regulator earlier said $17 billion of such AT1s from Credit Suisse would be wiped out.
Elsewhere in markets, yields on Australian and New Zealand bonds fell after rates dropped across the curve in the US debt market on Friday. Bitcoin fluctuated near its highest level since June.
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 rose 0.3% as of 12:20 p.m. Tokyo time. The S&P 500 fell 1.1% on Friday
- Nasdaq 100 futures rose 0.3%. The Nasdaq 100 fell 0.5%
- Euro Stoxx 50 futures were little changed
- Japan’s Topix index fell 0.9%
- Hong Kong’s Hang Seng Index fell 2.3%
- China’s Shanghai Composite Index rose 0.2%
- Australia’s S&P/ASX 200 Index fell 1%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.0669
- The Japanese yen fell 0.2% to 132.06 per dollar
- The offshore yuan fell 0.2% to 6.8990 per dollar
- The Australian dollar was little changed at $0.6694
- The Swiss franc was unchanged at 0.9261
Cryptocurrencies
- Bitcoin fell 1.9% to $27,451.72
- Ether fell 1.8% to $1,767.08
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 11 basis points to 3.29%
Commodities
- West Texas Intermediate crude fell 0.5% to $66.40 a barrel
- Spot gold fell 0.7% to $1,974.90 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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