U.S. futures fall after UBS buys Credit Suisse to stem bank crisis

Soegeefx AppsUS MarketU.S. futures fall after UBS buys Credit Suisse to stem bank crisis

U.S. stock futures were lower on Monday after the Swiss government engineered a forced takeover of Credit Suisse by UBS, marking the latest effort by governments around the world to stifle a crisis threatening the banking sector.

Dow Jones Industrial Average futures fell by 153 points, or 0.5%. S7P 500 futures were down 0.4%, and Nasdaq-100 futures dipped by 0.2%.

Investors remained on edge as the week’s trading began, with regional banks still under pressure to shore up their deposit bases in the wake of the collapse of Silicon Valley Bank earlier this month. Wall Street expects more actions may be needed to restore confidence in the banking system after U.S. regulators backstopped SVB’s uninsured deposits and offered for troubled banks new funding one week ago.

The instability in the financial sector over the past two weeks raised the stakes for the Federal Reserve’s interest rate decision on Wednesday. As of Monday morning, there is about a 57% chance of a quarter-point increase by the Fed, according to CME Group Data using fed funds futures contracts as a guide. The other 38% is in the no-hike camp, anticipating that Chairman Jerome Powell may start to ease his aggressive tightening campaign that began in March 2022, in the face of the emerging financial contagion.

UBS agreed to buy Credit Suisse for 3 billion Swiss francs, or $3.2 billion, with the combined bank to have $5 trillion in assets. Credit Suisse shares were down 21% last week. Shortly after UBS announced its takeover deal, the Fed Announced it had joined with other central banks in a joint liquidity operation. The group of central banks — including the Bank of Canada, Bank of England, Bank of Japan, European Central Bank and Swiss National Bank — agreed to increase the frequency of their U.S. dollar swap line arrangements from weekly to daily.

UBS’s takeover of its beleaguered rival is “unambiguously good for the overarching concerns about the stability of the global banking sector,” according to B. Riley Wealth Management chief market strategist Art Hogan.

But traders may be eager for more to be done by regulators to stem the slide in regional banks. First Republic shares fell 15% in the premarket Monday after losing 72% last week. The declines come even after a group of banks Thursday pledged to deposit $30 billion for at least 120 days in the embattled San Francisco institution. The SPDR Regional Banking ETF (KRE) tumbled 14% last week.

Despite the anxiety surrounding bank stocks, the S&P 500 and Nasdaq Composite closed higher for the week as investors rotated back into technology shares that could benefit from a lower interest rate environment. Meanwhile, the Dow declined 0.15% for the week.

“I think there’s there’s been an overreaction to the regional banks. … And that likely represents an opportunity,” said Hogan.

“As we enter a new week, we will likely see a bid for both the big money center banks, and for the energy complex writ large, because I think there’s been a couple of severe overreactions in the marketplace,” Hogan added.

Source: CNBC

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