Wall Street advances ahead of Fed meeting as FTSE closes higher
The FTSE 100 and European stocks finished higher this Tuesday as calm returned to the markets after some volatile sessions and investors turn their focus to rate calls.
The FTSE 100 (^FTSE) rose 1.81% to close at 7,534 points, while the CAC 40 (^FCHI) in Paris jumped 1.48% to 7,117 points. In Germany, the DAX (^GDAXI) climbed 1.75% to 15,194.
UBS takeover of Credit Suisse
The panic that characterised trade over the past 11 days appeared to have faded after authorities pledged support for depositors and troubled banks.
However, the takeover of Credit Suisse (CS) by UBS (UBS) for £2.7bn ($3.25bn) fanned concerns about what could be next, and analysts warned it was too early to say that the crisis was over.
Victoria Scholar, head of investment at Interactive Investor, said: “Up to a third of the 120,000 jobs in the combined UBS/Credit Suisse group could be let go.
“According to the Financial Times, tens of thousands of staff could be cut with Credit Suisse employees most at risk. A major restructuring and cost cutting programme was already underway at the embattled lender before the Swiss authorities arranged the rescue deal with 9,000 jobs cuts planned as well as a major scale back of its investment bank.
“Southeast Asia could be the region most at risk to job cuts given that it has the biggest overlap in terms of investment banking and wealth management teams.”
Read more: Trending tickers: Credit Suisse | Kingfisher | Fresnillo
Rating agency Moody’s cut the outlook on UBS Group’s debt to negative following its takeover of Credit Suisse.
Moody’s affirmed UBS’s current credit ratings, but lowered the outlooks on its long term deposit and senior unsecured ratings to negative from stable.
Luke Hickmore, investment director at abrdn (ABDN.L), said it is too early to "call the all clear" from the Credit Suisse turmoil.
Hickmore told BBC Radio 4's Today programme: “That seems to have calmed everything down. But one of the lessons from the collapse of Lehmans way back in 2007 is the market was very calm in the week afterwards.
“I hope things have gone away and it's calmed down but it feels a bit early to call the all clear.”
US and Asia
US stocks moved higher early on Tuesday following US and European efforts to stabilise the banking system.
The ripples of the bank sector crisis comes on the heels of the Federal Reserve’s next interest rate decision on Wednesday. Its policy meeting kicks off this Tuesday.
The Dow Jones (^DJI) rose 0.50% to 32,406 points. The S&P 500 (^GSPC) climbed 0.65% to 3,977 points and the tech-heavy NASDAQ (^IXIC) gained 0.80% to 11,769.
Meanwhile, the US government is exploring ways to guarantee all bank deposits, an effort that wouldn’t need Congress to pass a new law, Bloomberg reported.
Treasury secretary Janet Yellen said at an event on Tuesday morning that the government could backstop more deposits if necessary for smaller lenders.
In Asia, Tokyo’s Nikkei 225 (^N225) finished lower, falling 1.42% to 26,945 points, while the Hang Seng (^HSI) in Hong Kong gained 1.36% to 19,258. The Shanghai Composite (000001.SS) also gained ground, rising 0.64% to 3,255 points.
Back in London, stocks continued their rebound following the turmoil after the rescue of Credit Suisse by UBS.
NatWest (NWG.L) led the way, up 5.90%, with Barclays (BARC.L) gaining 5.45%, and Lloyds (LLOY.L), climbing 4.47%, also in the top risers.
Michael Hewson, chief market analyst at CMC Markets UK, cautioned: “Sentiment is likely to remain fragile over the next few days until we see the outcome of tomorrow’s Fed meeting, and their take on recent events, while on Thursday we get the latest central bank decisions from the Swiss National Bank and the Bank of England (BoE).”
Kallum Pickering at Berenberg noted the picture on UK rates has changed materially in light of events in the banking sector. “After highlighting the downside risks last week, we now expect the BoE to hold the bank rate at 4.0% at its policy meeting on Thursday,” he said.
Read more: UK government borrowing hits February record on energy bill help
Steve Clayton, head of equity funds at Hargreaves Lansdown, said: “Markets took a breather from fretting about banking contagion overnight. Wall Street saw modest rallies across leading industrial, financial and technology sectors as investors dissected the detail of the rescue of Credit Suisse by longstanding rival, UBS.
“The deal has combined Switzerland’s two leading banks, both of them leading players in the international investment banking arena. Both, of course, are also substantial private bankers handling the affairs of rich families worldwide.
“Initially sceptical of the deal, the market’s mood changed over the course of yesterday, with UBS shares ending higher after a sharp initial fall.”
The pound (GBPUSD=X) was trading modestly lower against the dollar, at around $1.2189, as traders speculate that the stress on banks will stop the Bank of England from increasing interest rates much more.
Investec downgraded its expectations for Thursday's rate decision from 4.25% to 4%, citing increased concerns over financial stability.
Meanwhile, Brent crude (BZ=F) bounced back and was trading at around $74 per barrel, after falling to a 15-month low following turmoil in the banking sector
Watch: Credit Suisse bondholders may take legal action over £14bn wipe out in UBS takeover
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