European banking stocks fell at the opening of the market on Monday, with Credit Suisse and UBS leading the decline. Banking stocks fell 2.75% at 9:17 a.m. London time but recovered some losses. Credit Suisse saw its shares drop by 58% while UBS fell by 9% at the opening of the market. The latter agreed to an emergency takeover of Credit Suisse, which has been facing difficulties. Other banks such as ING Groep, Deutsche Bank, and Barclays also fell by over 5%. Meanwhile, the Stoxx 600 index was 1.4% lower at 8:30 a.m. London time, with losses across major stock exchanges and in all sectors except utilities. On the other hand, Australian gold miners’ shares surged on Monday morning as gold prices traded near a one-year high. The Bank of Japan predicted that inflation could slow this year, expressing the need to continue its monetary easing policy. Lastly, Warren Buffett, the billionaire investor, has been in talks with senior Biden administration officials in recent days regarding the crisis in the banking sector, according to a report from Reuters.
U.S. Stock Futures Remain Flat as Traders Assess Banking System Stress After UBS-Credit Suisse Deal: Live Updates
As regional banks continue to face pressure to strengthen their deposit bases, investors remain uncertain. The week’s trading began with the stock futures remaining flat.
Bitcoin, which recently surged above $28,000 for the first time in over nine months, saw a minor decline of 0.09% to $28,300.90 on Monday morning. Ether also fell around 2% to trade at $1,788.70.
The price of Bitcoin increased around the same time when UBS agreed to buy Credit Suisse in a deal worth more than $3 billion, reducing investors’ concerns about financial contagion from the U.S. regional banks to the larger money center banks.
However, the move has raised the stakes for the Federal Reserve’s interest rate decision on Wednesday, with some suggesting that the Fed might ease the pace of its inflation-fighting rate hikes due to the emerging financial contagion.
According to Evercore Chairman Roger Altman, the Federal Reserve could undermine confidence in the financial system if it holds off on a rate hike this week. Markets generally expect the Fed to approve a 0.25 percentage point hike during its two-day meeting, but it is expected to be a close call.
Goldman Sachs also suggests that the Fed may avoid another rate hike on Wednesday due to the stress on the banking sector. Prior to the collapse of Silicon Valley Bank, economists debated whether the Fed should hike by 50 basis points or 25 basis points at its next meeting due to high inflation readings in recent weeks.
Conclusion
Uncertainty surrounds the stock futures as investors continue to monitor regional banks and their deposit bases. Bitcoin experienced a minor decline on Monday morning, and Ether also fell around 2%. UBS’s acquisition of Credit Suisse raised the stakes for the Federal Reserve’s upcoming interest rate decision on Wednesday, with the possibility of the Fed easing the pace of its inflation-fighting rate hikes due to emerging financial contagion.
First Republic has experienced a significant decline this month, with an 80% loss in value, after the collapse of Silicon Valley Bank sparked concerns about other regional banks with significant uninsured deposits. S&P has now downgraded First Republic’s credit rating to B+ from BB+ due to concerns about its liquidity and substantial deposit outflows.
Meanwhile, European stock markets reversed their losses on Monday morning after news broke of UBS’s takeover of Credit Suisse, with the pan-European Stoxx 600 index trading 0.5% higher, while Germany’s DAX rose 0.7% and the UK’s FTSE 100 gained 0.3%.
However, UBS and Credit Suisse saw their U.S.-traded shares fall on Monday morning, with UBS’s shares declining over 4% and Credit Suisse’s tumbling almost 59% during premarket trading. This follows UBS’s decision to buy Credit Suisse as part of a cut-price deal to contain the risk of contagion to the global banking system.
Traders at JPMorgan have expressed doubts about any sustained rally in the stock market, citing the need for lower inflation, higher earnings, and a resolution to the banking crisis. They suggest that any near-term rally may be driven by light positioning and rotation within equities towards tech/mega-cap tech.
Conclusion
First Republic’s shares have dropped 15% in premarket trading after S&P downgraded the bank’s credit rating due to concerns about its liquidity and deposit outflows. UBS’s takeover of Credit Suisse has caused shares in both banks to fall in U.S. trading. However, European stock markets have reversed their losses, while JPMorgan traders express doubts about the potential for a sustained stock market rally.
Banking Crisis Continues as Credit Suisse and UBS Drive the Fall in Bank Stocks
Bank stocks slid at the open of trading on Monday, with Credit Suisse and UBS driving the fall. Banking stocks were down 2.75% by 9:17 a.m. London time, though some losses were pared later. Credit Suisse shares were down 58%, while UBS recovered slightly to trade 9% lower by 9:17 a.m. London time, after agreeing to an emergency takeover of its embattled rival. Other banks also lingered in the red, with ING Groep, Deutsche Bank, and Barclays all down over 5%.
European Stocks Affected by UBS Takeover
European stocks were lower in early trade as investors assessed a news-filled weekend that resulted in a UBS takeover of Credit Suisse. The Stoxx 600 index was 1.4% lower at 8:30 a.m. London time, with losses across the major stock exchanges and in all sectors except utilities.
Gold Prices Near One-Year High, Australian Gold Miners Surge
Gold prices traded near a one-year high, reaching $1,977.70 per ounce on Monday. Australian gold miners’ shares surged, bucking the wider trend in Australian markets.
Bank of Japan Predicts Inflation Could Slow
The Bank of Japan’s summary of opinions from its March meeting predicted that inflation could slow this year. The report stated that “the year-on-year rate of increase in the consumer price index (CPI) is likely to decelerate toward the middle of fiscal 2023 due to the effects of pushing down energy prices from the government’s economic measures.” The report also expressed the need to carry on with its monetary easing policy.
Tech Sector Rallies Amid Banking Crisis
While the banking crisis rocked markets, the tech sector was one bright spot last week. Market pros urge caution but believe some stocks are set to outperform.
Investors should continue to watch the banking sector closely, as the spillover effects on the broader economy could be significant.
Last week was brutal for the regional banking industry, with the SPDR Regional Banking ETF (KRE) falling 6% on Friday, resulting in a 14% weekly loss. First Republic took the biggest hit among regional banks, with its shares plummeting by 72% for the week through Friday’s close. Other banks also took a beating, with PacWest dropping 19% on Friday, and US Bancorp and Western Alliance plunging 9% and 15%, respectively.
The European electric vehicle (EV) market is expected to be worth $300 billion by 2030, presenting an enormous opportunity for investors. While EV automakers may be the most obvious plays, analysts have highlighted a range of stock picks across various sectors as a way to capitalize on the trend.
In other news, the Federal Deposit Insurance Corporation (FDIC) recently announced a deal to sell “substantially all deposits and certain loan portfolios” of Signature Bank to Flagstar Bank, a subsidiary of New York Community Bancorp. Flagstar will begin operating the 40 former Signature Bank branches on Monday. However, Flagstar’s bid did not include the approximately $4 billion in deposits related to Signature’s digital banking business, which the FDIC will provide directly to digital banking customers.
In Switzerland, UBS has agreed to acquire Credit Suisse for $3.2 billion in a deal that Swiss regulators facilitated to prevent a contagion from affecting the banking sector. Credit Suisse shares plummeted last week, falling 25.5% by the end of the week, after its largest investor, the Saudi National Bank, declined to provide additional funding. Under the deal, Credit Suisse shareholders will receive one UBS share for every 22.48 Credit Suisse shares, resulting in a combined bank with $5 trillion of invested assets, according to UBS.
Warren Buffett, the billionaire investor and a long-time investor in the financial sector, has reportedly been in talks with senior Biden administration officials to discuss the ongoing banking crisis, according to a recent report from Reuters. However, the details of the discussions have not been disclosed, and both the White House and U.S. Treasury declined to comment on the matter.
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