U.S. stock futures wobbled ahead of the opening bell Monday morning following UBS's deal to buy smaller rival Credit Suisse, in a bid to avoid further market-shaking turmoil in global banking. “The [market] will need to digest the M&A from the weekend and then await the results of the FDIC auctions to see whether it agrees that contagion is contained,” the US Market Intelligence team at JPMorgan said in a note to clients. Investors are seeking safety, purchasing government bonds. Indeed, the yield on the benchmark 10-year U.S. Treasury note moved down to 3.4% Monday morning. On the front end of the yield curve, two-year yields dipped to 3.78%. Futures tied to the S&P 500, futures on the Dow Jones Industrial Average, and contracts on the technology-heavy Nasdaq Composite all ticked down near the flatline.
UBS struck a deal to purchase the troubled Credit Suisse at a steep discount Sunday afternoon. Markets looked at the more than $3 billion takeover with skepticism as shares of both banks Credit Suisse (CS) and UBS Group AG (UBS) tumbled in premarket trading. "This acquisition is attractive for UBS shareholders but, let us be clear, as far as Credit Suisse is concerned, this is an emergency rescue," UBS chair Colm Kelleher said in a statement. Bank sentiment hasn’t rebounded, with the KBW Bank index looking to move lower Monday. Large-cap index members including Bank of America, JPMorgan Chase, Wells Fargo and Citigroup all traded lower before the opening bell. Other regional bank stocks sank, including First Republic Bank, as S&P Global Ratings downgraded FRC for the second time in four days. The bank’s credit rating moved three notches downward to B+. PacWest Bancorp and Zions Bancorporation were slightly up, while Western Alliance Bancorporation and Regions Financial traded down Monday morning. Separately, Signature Bank’s deposits have found a buyer. Flagstar Bank, a subsidiary of New York Community Bank, bought the majority of deposits and some loan portfolios of the failed crypto lender. Shares of New York Community Bancorp rallied Monday. On the other hand, Silicon Valley Bank was warned by BlackRock consultants about its risk controls. According to a Financial Times report, the now-failed bank got a “gentleman’s C” in a 2022 report that showed substantial deficiencies. All three major indexes and bond yields fell Friday, wrapping up a tumultuous week as concerns rose following the turmoil in the bank sector. Investors pulled back from their positions in First Republic and other regional bank shares, which came a day after a commitment from a group of banks banded together to deposit $30 billion into First Republic, in a bid to boost confidence in the banking system. Despite the down session, the S&P 500 settled 1.4% higher on the week and the Nasdaq jumped more than 4%. Friday's slide pulled the Dow Jones average slightly negative for the week. The headliner event of the week will be a crucial two-day meeting of the Federal Reserve's policy-making committee, with some investors debating over the potential hawkish tilt. The bets continue, with Bank of America forecasting the Fed will lift target range will lift by 25 basis points to 4.75-5.0% and maintain its balance sheet runoff. Economists at BofA are under the assumption that the emergence of financial stress is likely to indicate to the committee that monetary policy is close to “sufficiently restrictive.” Meanwhile, Moody’s economist Mark Zandi is taking a firmer stance that the central bank should loosen its tightening policy due to higher recession risks. "If they raise rates, that qualifies as a mistake, and I would call it an egregious mistake," he warned. The Fed, along with other central banks, have gotten involved amid the ongoing banking turmoil. The world's leading central banks announced actions that would aim to keep U.S. dollars flowing easily throughout the global banking system. Outside the Fed’s rate debate, economic reports are due to pour in, including housing data, services and manufacturing activity readings from S&P Global. On the earnings calendar, results from Foot Locker, Nike, Darden Restaurants are set to be released this week providing an update on the state of the consumer. Elsewhere overseas, Chinese President Xi Jinping is in Moscow this week, talking with Russian President Vladimir Putin amid sharpening East-West tensions over the war in Ukraine and the latest sign of Beijing’s emboldened diplomatic ambitions.Most Asian stocks fell on Monday as emergency liquidity measures and bank consolidations in U.S. and Europe did little to stem fears of a potential banking crisis, with markets now awaiting more cues on monetary policy from a Federal Reserve meeting this week. Bank-heavy indexes once again saw steep losses, with Japan’s Nikkei 225 down 1%, while India’s Nifty 50 and BSE Sensex 30 indexes lost 0.9% and 0.8%, respectively. Australia’s ASX 200 index was also battered by losses in the country’s big four banks, which fell between 0.1% to 1.1%. Hong Kong’s Hang Seng index plummeted 2.6%, with HSBC Holdings PLC (HK:0005) down nearly 6% – the worst performer on the index. The lender had recently taken over the British arm of Silicon Valley Bank, which collapsed following a bank run earlier this month. Chinese stocks were the sole outliers Monday, with the Shanghai Shenzhen CSI 300 and Shanghai Composite indexes rising 0.1% each after the People’s Bank unexpectedly cut its reserve requirement ratio for local lenders. Oil futures remained under pressure Monday, failing to find support after logging their biggest weekly drop of 2023 as banking jitters stoked recession fears. West Texas Intermediate crude for April delivery fell $1, or 1.5%, to $65.74 a barrel on the New York Mercantile Exchange, after falling 13% last week. May Brent crude, the global benchmark, was down 97 cents, or 1.3%, at $72 a barrel on ICE Futures Europe. It fell 11.9% last week.