MARKET WRAPS
Watch For:
EU foreign trade, ECB survey of monetary analysts results; Germany PPI, Bundesbank monthly report
Opening Call:
Shares are off to a shaky start in Europe on Monday, as fears of a global banking crisis weigh on investors' minds. In Asia, stock benchmarks were broadly lower amid cautious sentiment; Treasury yields broadly gained; the dollar advanced; while oil slipped and gold rose.
Equities:
Stocks could falter in Europe on Monday, as investors assess a historic deal to rescue troubled Swiss lender Credit Suisse, the latest maneuver by authorities attempting to prevent a deeper loss of confidence in the global banking system.
Swiss bank UBS Group agreed to buy rival Credit Suisse for more than $3 billion, a substantial discount to its Friday closing price, in a deal shepherded by Swiss regulators and closely watched by monetary and economic policy makers around the world.
Also Sunday, the Federal Reserve and five other major central banks announced they were taking steps to ensure that U.S. dollars remained readily accessible throughout the global financial system.
Economists expect U.S. banks to significantly tighten lending standards in response to the upheaval, raising the odds of the economy falling into recession.
As a result, fed-funds futures traders abandon expectations for a return to a supersized 50-basis-point, or half-percentage-point, rise in the Fed's benchmark interest rate when policy makers complete a two-day meeting on Wednesday.
Forex:
The dollar strengthened in Asia, as regulators press to restore confidence in the global banking system by engineering a deal for UBS to buy Credit Suisse.
ANZ Bank said it is hard to see financial instability and bank wobbles disappearing any time soon, so investors should expect ongoing volatility.
Capital Economics said the dollar is on the backfoot despite worsening risk appetite because "expected interest rates, and therefore bond yields, have dropped much further in the U.S. than in most other economies. That shift in interest rate differentials has more than offset the (so far) relatively limited impact of the uncertainty around the banking sector on broader risk sentiment," making the yen the main beneficiary so far.
Bonds:
Treasury yields mostly rose after previous declines amid worries about the banking sector, which outweighed assessments on how high the Federal Reserve will raise interest rates to combat inflation.
If the Fed wants to fix the banking system, it needs to un-invert the yield curve, Navellier & Associates said.
"A lot of this damage is self-inflicted by the Fed. An inverted yield curve slows lending down and constrains economic activity."
Navellier & Associates added that the curve "isn't as bad as it once was, but the Fed has to intervene with their open market action to push the yield down."
"U.S. banks' problems may have only just begun, but we doubt a Global Financial Crisis 2.0 is on the cards," said Capital Economics.
"More problems may yet emerge at other commercial banks in the U.S. But the industry as a whole doesn't have a worryingly high uninsured deposit ratio or unrealized losses on 'held-to-maturity' securities in excess of capital. And if more skeletons do emerge from the closet, this is more likely to be the case for banks that have been relatively lightly regulated because they pose less of a risk to the economy," it said.
Energy:
Oil prices gave up early gains as worries over the U.S. and European banking sector stoked recession fears.
"Oil prices have become particularly caught up in the downward pull amid the current market turmoil," said Commerzbank.
"The risk-off market signal has had a mixed impact across mining and energy commodity prices," CBA said, adding that some of the most decisive shifts have been in the fall of oil benchmarks.
ANZ reckons it may be an opportune time for the U.S. to refill its strategic reserve, given that it is at its lowest level since the 1980s.
"The White House administration has previously said it won't start refilling it until prices fall below USD70/bbl, a level WTI closed below last week," it added.
Metals:
Gold prices retraced earlier losses in Asia, as investors turned to safe-haven assets amid the stress in the banking sector on both sides of the Atlantic.
Precious metals analysts said gold is benefiting from the view the Federal Reserve might end its cycle of interest-rate hikes at its meeting on Wednesday, delivering one final 25 basis point hike before standing pat.
"All bets of a 50-basis-point hike have vanished, with there being rising expectations of an end to the tightening cycle," DailyFX said.
Oanda puts the key resistance level for gold at $1,960, around the February highs.
---
Copper prices were higher, with gains probably due to opportunistic buying after the price of the metal slumped last week, said ANZ.
Prices were also likely supported as investor sentiment brightened after regulators and larger banks stepped in to backstop deposits to avert a wider banking crisis in the U.S. and the EU, it said.
---
Chinese iron ore futures fell amid negative sentiment spurred by losses across most regional equity markets.
However, iron ore prices appear well supported in the near term, Citi Research said.
Chinese steel mills' inventories are apparently at 50% of normal levels for March, which creates possible upside risks if China's steel production is stronger than expected, Citi Research said.
TODAY'S TOP HEADLINES
UBS Agrees to Buy Credit Suisse for More Than $3 Billion
UBS Group AG agreed to take over its longtime rival Credit Suisse Group AG for more than $3 billion, pushed into the biggest banking deal in years by regulators eager to halt a dangerous decline in confidence in the global banking system.
The deal between the twin pillars of Swiss finance is the first megamerger of systemically important global banks since the 2008 financial crisis when institutions across the banking landscape were carved up and matched with rivals, often at the behest of regulators.
First Republic Bank Looms Large for U.S. Regulators After Credit Suisse Sale
U.S. policy makers warily watched the rushed rescue of Credit Suisse Group AG over the weekend, hoping that its purchase by UBS Group AG would stem a slide in financial stocks triggered by the recent collapse of two regional banks.
Late Sunday, the Fed and five major central banks announced a coordinated effort to improve liquidity by moving U.S. dollars among themselves each day, starting Monday, instead of once a week. The central banks then lend those dollars out to financial institutions, in an effort to backstop other countries' funding needs should strains emerge in global markets.
Fed Raised Concerns About SVB's Risk Management in 2019
WASHINGTON-The Federal Reserve raised concerns about risk management at Silicon Valley Bank starting at least four years before its failure earlier this month, documents show.
In January 2019, the Fed issued a warning to SVB over its risk-management systems, according to a presentation circulated last year to employees of SVB's venture-capital arm, which was viewed by The Wall Street Journal.
Ukraine Grain Deal Is Extended; Russian Drones Downed
Russia, Ukraine, Turkey and the United Nations agreed to extend a deal to allow shipments of Ukrainian grain via Black Sea ports, as Moscow launched a fresh wave of attack drones against its neighbor.
The grain deal was prolonged for 120 days after talks on Friday night ahead of its expiration this weekend, said Oleksandr Kubrakov, a Ukrainian deputy prime minister, under an agreement signed last year that alleviated concerns of a global food crisis.
Vladimir Putin Harshly Criticizes West as Xi Jinping Strikes Softer Tone
Russian President Vladimir Putin hailed Moscow's deepening political and economic relations with China and hit out at the West for trying to contain the two countries' development, while Chinese leader Xi Jinping stressed that their relations aren't directed at third parties on the eve of his visit in Moscow.
In an article for the Chinese Communist Party's flagship newspaper, People's Daily, Mr. Putin wrote that the two nations are "standing on the brink of a new era."
French Protests, Turning Violent, Aim to Override Macron's Pension Overhaul
President Emmanuel Macron of France might have circumvented Parliament in passing his contentious pension overhaul, but there remains a large constituency-millions of street protesters-who contend they have final say in the matter.
Protest movements have long been the final arbiter, albeit an unofficial one, of France's political system, bringing successive governments to their knees and forcing previous presidents to abandon or even rescind legislation protesters oppose. That is why thousands of protesters have streamed into public squares across France since Mr. Macron exercised Article 49 of the constitution to raise France's retirement age to 64 from 62 by 2030 without the consent of Parliament.
U.K. Billionaire Bidding for Manchester United Plots a U.S. Expansion
LONDON-U. K. billionaire Jim Ratcliffe has built one of the world's most unconventional conglomerates, a sprawling collection of assets that includes a global chemicals business and baubles like a centuries-old London pub and a luxury British fashion brand.
Now the 70-year-old tycoon, who was knighted in his home country but isn't as well known outside of Europe, is making a deeper push into the U.S. market.
Write to singaporeeditors@dowjones.com
Expected Major Events for Monday
00:01/UK: Mar Rightmove House Price Index
07:00/GER: Feb PPI
09:00/POL: Feb Average gross wages
09:00/POL: Feb Industrial Production Index
09:00/POL: Feb PPI
09:30/UK: 4Q Business Finance Review
10:00/EU: Jan Foreign trade
10:00/LUX: Feb Unemployment
11:00/UK: Feb Aluminium Production report
17:59/POR: Dec ICSG Copper Report
(MORE TO FOLLOW) Dow Jones Newswires
03-20-23 0115ET
