Global Stock Market: With a focus on the Federal Reserve’s policy response to the US bank upheaval and the future of Credit Suisse Group AG in Switzerland as rescue talks proceeded over the weekend, the world’s markets are bracing for what appears to be another turbulent week.
Currencies will give an early indication of investor sentiment, with trading in the Asia-Pacific region set to get under way at about 5 a.m. Sydney time. Traders will watch how the Swiss franc reacts to the flurry of weekend activity that saw rival UBS Group AG considering an acquisition of Credit Suisse while the government weighed taking a stake in the bank. The Swiss currency has lost some of its haven appeal with the country’s banking sector being at the center of the financial turmoil. The Japanese yen, which led gains among Group of 10 currencies last week, will give a sense of the flight to safety.
Swiss authorities are seeking to push through a takeover of Credit Suisse by UBS, but with the former resisting the $1 billion offer as too low, the risk of some form of nationalization has risen. Meanwhile, Californian authorities are working on a break-up of the collapsed Silicon Valley Bank. The multiple pressure points in the financial system are roiling global markets and leaving the Federal Reserve with a tough choice between carrying on its fight against inflation or taking a pause to prioritize financial stability.
Credit Suisse Paths Narrow on Low UBS Bid, Government Aid Talks
Volatility skyrocketed last week as fears spread about the health of the global financial system amid the effects of the Fed’s yearlong campaign to fight inflation. Concern about potential contagion sent investors scurrying for haven assets and forced a radical rethink about how tight the Fed — and other central banks — will be able to keep policy.
Front-end Treasury yields were whipsawed by more than 20 basis points every day as investors plowed cash into US securities. US bank equities took a beating and technology stocks turned out to be something of a refuge.
At the close of trade last week, swap markets indicated around a two-in-three chance that the Fed would opt to push ahead with a quarter-point interest-rate increase at its meeting Wednesday, although pricing suggested that it’s likely to end its tightening cycle there. At the height of bank stress concerns earlier in the week, traders had lowered the odds of a quarter point hike to less than half while some banks, including Goldman Sachs and Barclays, changed their rate calls and they now don’t expect a rate hike.