Asian markets are set for a volatile open on Monday after Swiss officials said UBS (UBSG.S) is taking over Credit Suisse (CSGNS.S). blown crisis
The $3.2 billion deal comes after sudden turmoil in the global banking sector – the implosion of Credit Suisse following two US bank failures – sparked unprecedented volatility in US interest rate and bond markets.
Will it be enough to calm the horses? On the face of it, maybe. But billions of dollars worth of assets will be hurt by investors already battered by recent events.
China’s central bank announced its latest interest rate decision on Monday morning. Recent inflation is much weaker than expected and after Friday’s reserve requirement cut, the 1-year and 5-year loan prime rates are expected to remain at 3.65% and 4.30%, respectively.
Given the turmoil in global banking and markets right now, a rate cut would not be a total shock. But the Asian market direction will be driven by events in Europe and the United States on Monday.
Last week, MSCI’s world index ended flat, MSCI Asia ex-Japan rose 0.5%, the S&P 500 rose 1.5%, and the Nasdaq jumped a remarkable 4.5%, lifting hopes that the Fed’s rate-hiking campaign may be coming to an end.
The Fed gives its latest policy decision on Wednesday. But no equity market can ignore seismic shifts in US rates and bonds for long. Historical past week:
– The 2-year US yield declined 75 basis points, the biggest weekly decline since Black Monday in 1987.
Two-year yields have now risen 20 bps or more for seven straight days, the longest such streak since at least 1976
– The US 2s/10s curve rose 50 bps last week, the most in at least a decade
– The ‘MOVE’ index of Treasury market volatility posted its largest weekly increase since 2008, and the fourth largest since the index was released two decades ago
Bond market volatility increases
The damage to investors of all stripes from that level of volatility in one of the world’s most liquid and systemically important securities cannot be overstated. Those who come in direct contact will suffer heavy losses.
If all this wasn’t enough, geopolitical tensions will also be on investors’ radar. Chinese President Xi Jinping is in Moscow, visiting Russian President Vladimir Putin on his first international trip after winning a third term as president.
Xi has been seeking to strengthen ties and cement his “no borders” partnership with an increasingly isolated Putin, who is facing criminal charges over his Ukraine war.
Here are three key developments that could provide more direction to the markets on Monday:
– Credit Suisse-UBS Events
– China Interest Rate Decision
Chinese President Xi Jinping is on a visit to Russia
