Markets are rallying as fear of a broader bank collapse subsides.
ASX 200 futures were 0.7% higher at 6,969 at the close of the US session, pointing to a green day on the local market.
Macro factors could still play a major part in market swings, with several events to keep an eye on including the release of the RBA’s latest meeting minutes, the meeting between Russian president Vladimir Putin and China’s premier Xi Jinping in Moscow and Amazon’s severe job cuts.
Meanwhile, Credit Suisse (SIX:CSGN) bondholders are weighing legal action following the UBS acquisition. Global law firm Quinn Emanuel Urquhart & Sullivan have had discussions with Credit Suisse bondholders following the wiped-out value of their bonds as a result of the merger between UBS and Credit Suisse.
Investors are concerned by news that Credit Suisse's additional tier-1 bonds or AT1 bonds with a notional value of US$17 billion will be valued at zero.
The law firm has gathered a team of lawyers from Switzerland, the US and the UK to discuss possible redress.
As this goes on, US-based First Republic Bank’s shares slumped 47% as major banks attempt to rescue another contagion-hit financial institution.
Here’s what we saw (source Commsec):
In Europe
European sharemarkets closed higher on Monday, reversing earlier losses as banking stocks (+1.3%) rebounded from three-month lows sparked by UBS' state-backed takeover of Credit Suisse for a fraction of its market value.
Elsewhere, European mining stocks led gains, up 2.8%, as copper prices firmed.
The continent-wide FTSEurofirst 300 index rose by 1.1% and the UK FTSE 100 index gained 0.9%.
In the US
US share markets rebounded on Monday after a deal to rescue Credit Suisse and central bank efforts to bolster confidence in the financial system, while investors also weighed the likelihood of a pause in interest rate hikes from the US Federal Reserve this week.
The KBW Regional Banking index rose by 1.5%. Shares of PacWest Bancorp lifted 10.8% after the bank said deposit outflows had stabilised while New York Community Bancorp shares jumped 31.7% after the bank's unit agreed to buy deposits and loans from Signature Bank.
But shares of Californian lender First Republic Bank slid 47.1% following a credit downgrade by S&P Global. Shares of major US banks Goldman Sachs (NYSE:NYSE:GS) (+2%), Morgan Stanley (NYSE:NYSE:MS) (+1.7%) and JPMorgan Chase (NYSE:JPM) (+1.1%) all lifted.
Oil price gains boosted shares of Chevron (NYSE:CVX) (+1.5%) and Exxon Mobil (NYSE:XOM) (+2.6%) but shares of Amazon.com (NASDAQ:AMZN) slid 1.3% following the company's plans to cut another 9,000 jobs. The Dow Jones index rose by 383 points or 1.2%. The S&P 500 index gained 0.9% and the Nasdaq index added 45 points or 0.4%.
- The Euro rose from US$1.0630 to US$1.0730 and was near US$1.0720 at the US close.
- The Aussie dollar lifted from US66.66 cents to US67.25 cents and was near US67.15 cents at the US close.
- The Japanese yen rose from 131.98 yen per US dollar to JPY130.54 and was near JPY131.45 at the US close.
- Global oil prices rose over 1% on Monday after falling to their lowest levels in 15 months as traders worried that risks in the global banking sector could spark a recession that would sap fuel demand. But improving investor risk appetite helped lift oil prices off session lows on bets the Fed could pause on rate hikes on Wednesday to ensure bank sector troubles do not snowball.
- The Brent crude oil price rose by US82 cents or 1.1% to US$73.79 a barrel.
- The US Nymex crude oil price gained US90 cents or 1.3% to US$67.64 a barrel.
- Base metal prices advanced on Monday. The copper futures price rose by 1.6% supported by a weaker US dollar and signs of improving demand from top consumer China.
- The aluminium futures price gained 0.5%.
- The gold futures price lifted by US$9.30 or 0.5% to US$1,982.80 an ounce. Spot gold was trading near US$1,978 an ounce at the US close.
- Iron ore futures fell by US$1.74 or 1.3% to US$128.26 a tonne after China's state planner issued a warning against speculation in the market.
Recession and a pause
According to JP Morgan (JPM), while fear may be subsiding, the impact of the banking issues increases the risk of recession and "promotes an earlier central bank pause".
JPM global strategists led by Marko Kolanovic say financial market stress could have a "material effect on monetary policy for some time to come", as risks to the outlook have changed".
"In particular, concerns are rising that the speed of the current adjustment is itself a source of instability; and even if central bankers successfully contain contagion, credit conditions look set to tighten more rapidly because of pressure from both markets and regulators," they say.
Analysts expect Fed chair Jerome Powell to back away from hawkish statements.
"The path ahead has become more uncertain … an early slide into recession would validate market expectations for easing, but the combination of a pause and economic resilience would set the stage for a resumption of tightening later this year.
"A soft landing now looks unlikely, with the airplane in a tailspin (lack of market confidence) and engines about to turn off (bank lending).
"Cracks are beginning to emerge in US credit fundamentals, and Euro credit spreads will likely continue to widen unless we see meaningful policy intervention."
JPM advises clients to sell into rallies
JPM has had a lot to say this morning.
“We stick to our call that [the first quarter] will likely end up the high point for [US] stocks this year, and see the strong rally since October, that was driven by our views of CPI peaking, China reopening and fall in European gas prices, not getting a fundamental confirmation in [the second half],” the strategists said in a note.
“We believe that what was a still resilient market backdrop earlier in the year, given light positioning, activity pickup, and supportive seasonals, is expiring.
“While parts of the market look short-term oversold, and there could be potential relief bounces, we advise to use these to sell into. It is unlikely that we will have a fundamental low reached until the Fed is well advanced with rate cuts.
“While our view is that some of these moves are getting extreme and that it is unlikely that the current stress becomes systemic, the damage is done and the financing conditions are set to tighten meaningfully further.”