by U.S. stock futures rose on Sunday as the Swiss government staged a forced takeover of Credit Suisse by UBS, marking the latest effort by governments around the world to quell a crisis threatening the banking sector.
Dow Jones Industrial Average futures rose 118 points, or 0.3%. S&P 500 and Nasdaq-100 futures rose 0.3%.
Investors remained nervous at the start of the week’s trading, with regional banks still under pressure to shore up their deposit bases following the collapse of Silicon Valley Bank earlier this month. Wall Street expects more action is needed to restore confidence in the banking system after U.S. regulators backed SVB’s uninsured deposits and offered new funding to troubled banks a week ago.
Financial sector instability over the past two weeks has raised the stakes for the Federal Reserve’s interest rate decision on Wednesday. On Sunday evening, there was about a 62% chance of a quarter-point hike by the Fed, according to data from the CME Group using federal funds futures as a guide. The remaining 38% are in the upside ban camp, anticipating that Chairman Jerome Powell may begin to ease his aggressive tightening campaign that began in March 2022, in the face of emerging financial contagion.
UBS has agreed to buy Credit Suisse for 3 billion Swiss francs, or $3.2 billion, with the combined bank expected to have $5 trillion in assets. Credit Suisse shares were down 21% last week. Shortly after UBS announced its takeover deal, the Fed announced that it had joined other central banks in a joint liquidity operation. The group of central banks – comprising the Bank of Canada, Bank of England, Bank of Japan, European Central Bank and Swiss National Bank – agreed to increase the frequency of their US dollar swap agreements by weekly to daily.
UBS’ takeover of its embattled rival is “unambiguously good for global concerns about the stability of the global banking industry,” according to Art Hogan, chief market strategist at B. Riley Wealth Management.
But traders may be eager for regulators to do more to stem the fall of regional banks. Shares of First Republic ended last week down 72%, even after a group of banks pledged on Thursday to deposit $30 billion in the San Francisco institution that has become a target on Wall Street. The SPDR Regional Banking ETF (KRE) fell 14% last week.
Despite concerns surrounding bank stocks, the S&P 500 and Nasdaq Composite closed higher for the week as investors returned to tech stocks which could benefit from a lower interest rate environment. Meanwhile, the Dow was down 0.15% for the week.
“I think there’s been an overreaction towards regional banks…And that probably represents an opportunity,” Hogan said.
“As we enter a new week, we are likely to see supply both for the major monetary central banks and for the energy complex in general, as I think there have been some severe overreactions in the market,” added Hogan.
