(Bloomberg) — A frenetic weekend in finance was met with comparatively meager moves in markets, with U.S. equity futures rising and the dollar weakening slightly against major currencies after UBS Group AG agreed to buy Credit Suisse Group and central banks moved to boost dollar liquidity.
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Early readings on efforts to shore up the financial system were tentatively positive after two weeks featuring multiple US bank failures and rising conviction that global economies will struggle as lenders cope with stress.
Futures for the S&P 500 rose about 0.7% after the index dropped more than 1% on Friday, dragged down by the financial sector. First Republic Bank, the latest US lender to signal stress, plunged over 70% on the week despite the larger banks throwing a lifeline to the regional lender Thursday.
Contracts for the Nasdaq 100 gained about 0.6% after the gauge notched its best week since November with a jump of 5.8%, despite a slump Friday. Technology stocks, which often benefit from lower interest rates, have been supported by concern that the turmoil in the banking sector will tip the global economy into recession, in turn forcing central banks to reverse course on monetary tightening.
The Swiss franc inched up, the yen weakened and risk-sensitive currencies like the Australian and New Zealand dollars made small gains.
Investors continue to debate whether the Federal Reserve will deliver another quarter-point hike or pause at its March 21-22 meeting. Traders no longer see much chance of a bigger half-point hike that Chair Jerome Powell had put on the table just before concerns about financial stability emerged.
“It is not at all clear that avoiding a rate hike would even help address the financial troubles in the banking system,” said Gerard MacDonell of 22V Research. “For the Fed to hold off on Wednesday might send a signal of panic. It might also lead to a further intensification of inflation pressures and more bond market volatility down the road.”
Yields on Australian and New Zealand bonds fell less than 10 points after rates dropped across the curve in the US debt market on Friday. The policy-sensitive two-year Treasury yield, which slumped over 30 basis points on Friday, swung more than 20 basis points for the seventh straight session as traders recalibrated rate-hike wagers. A softer-than-expected reading on inflation expectations Friday added to the downward pressure on yields.
Policymakers are rushing to shore up confidence after the collapse of Silicon Valley Bank and problems at Credit Suisse added to broader concerns over financial stability.
UBS’s government-backed takeover of Credit Suisse seeks to address client outflows and a massive rout in the target’s stock and bonds.
Meanwhile, the Fed and five other central banks announced coordinated action to boost liquidity in US dollar swap arrangements to ease strains in the global financial system.
“At first blush it seems to be a precautionary move, but it is hard to know as all the markets are not fully open yet,” said Subadra Rajappa, head of US rates strategy at Societe Generale SA. “The take up in the dollar swap lines was relatively muted last week, I would assume this is in preparing of market reaction to the merger of Swiss banks. The rally in equity futures is modest, it is hard to read too much into it.”
Elsewhere in markets, Bitcoin traded near its highest level since June amid a broad rally in cryptocurrencies.
These are the main market moves:
S&P 500 futures rose 0.7% as of 7:37 a.m. Tokyo time. The S&P 500 fell 1.1% on Friday
Nasdaq 100 futures rose 0.6%. The Nasdaq 100 fell 0.5% Friday
Nikkei 225 futures fell 1.1%
Australia’s S&P/ASX 200 Index futures fell 1.4%
Hang Seng Index futures fell 1.7%
The Bloomberg Dollar Spot Index fell 0.1%
The euro was little changed at $1.0667
The Japanese yen fell 0.3% to 132.20 per dollar
The offshore yuan was little changed at 6.8819 per dollar
The Australian dollar rose 0.2% to $0.6711
The Swiss franc was little changed at 0.9270
Bitcoin rose 0.6% to $28,129.93
Ether rose 0.4% to $1,805.66
West Texas Intermediate crude rose 0.5% to $67.09 a barrel
Spot gold fell 0.6% to $1,977.40 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Katie Greifeld and Isabelle Lee.
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