Fundamental Analysis

Equities Climb as Credit Suisse Deal Reassures Investors

  • Investors were reassured by a deal to save Credit Suisse.
  • Central banks’ move to boost trust in the financial system improved risk sentiment.
  • Fed funds futures currently indicate a 28.4% likelihood that the Fed will maintain its rates.

US equities increased on Monday as investors were reassured by a deal to save Credit Suisse and moves by central banks to boost trust in the financial system. Investors also considered the possibility that the Federal Reserve could hold off on raising interest rates this week.

Late on Sunday, UBS and rival Credit Suisse agreed to merge for $3.23 billion in a move facilitated by the Swiss government to prevent more unrest within the banking sector.

Major central banks also intervened on Sunday to increase the movement of money globally.

After significant losses the previous week, the KBW Regional Banking index increased by 1.5%, and the S&P Banking index increased by 0.6%.

Global banking crisis (Source: Eikon)
Global banking crisis (Source: Eikon)

Early this month, the failure of Silicon Valley Bank and Signature Bank sent stock markets into a tailspin. It raised concerns that the tightening of monetary policy by central banks would trigger a recession.

First Republic Bank, a regional bank, dropped 47.1% due to a downgrade by S&P Global and news of more fundraising. This raised concerns about the bank’s liquidity after a $30 billion rescue last week. Due to volatility, trading in the bank’s shares was suspended multiple times.

Investors will also keep a close eye on the Fed’s decision after its two-day meeting on Wednesday. Several market players had already priced in a 50 basis-point interest rate increase from the Fed at its March meeting before the crisis with the banks earlier this month.

According to CME’s FedWatch Tool, Fed funds futures currently indicate a 28.4% likelihood that the Fed will maintain its overnight rate at 4.5%–4.75% and a 71.6% likelihood that it will boost it by 25 basis points.

On Monday, European markets recovered from early losses and increased as banking stocks recovered from three-month lows. This was also brought on by UBS’ shotgun acquisition of Credit Suisse for a small portion of its market value.

At the same time, ECB President Christine Lagarde asserted that financial market instability would not hinder its efforts to combat inflation because the bank has distinct tools to address both problems.