MARKET WRAPS
Stocks:
European shares extended their retreat on Monday, with investors piling into haven assets, after regulators engineered a deal for UBS to take over rival Credit Suisse.
Separately, central banks sought to pre-empt a dash for cash.
Late on Sunday, the Federal Reserve and a quintet of global central banks announced a coordinated effort to ease access to dollars by international trading partners, increasing the cadence of seven-day maturity to daily from weekly operations.
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The latest development in the banking turmoil set off by Silicon Valley Bank's collapse, saw UBS agree to take over Credit Suisse 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 Swiss government said it would provide more than $9 billion to backstop some losses that UBS may incur by taking over Credit Suisse. The Swiss National Bank also provided more than $100 billion of liquidity to UBS to help facilitate the deal.
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French banks' financial strength and risk management have significantly improved compared to past period of turmoil in the sector, Citi said.
"It is difficult to fully address market nervousness, given ongoing turmoil, but our fundamental analysis suggests balance sheet/capital, liquidity, funding and risk management have improved markedly versus previous stressed times."
According to Citi, French banks are more regulated in terms of liquidity and funding and have a stronger profitability/business mix. Also their common equity tier-one capital ratio has increased significantly over time. For example, Societe Generale's CET1 stood at 13.5% in 2022 versus 6.6% in 2008 and 8.3% in 2009, according to Citi.
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U.K. banking stocks extended last week's losses, caught up in the market confusion caused by Credit Suisse's AT1 bond write down, Shore Capital said.
"Share prices are likely to remain sentiment-driven and so volatile in the near-term, and we would therefore encourage long-term investors to take advantage of the excellent buying opportunity in the U.K. banking sector that this has created," Shore said, noting that U.K. banks are in a strong position to withstand the economic downturn with strong balance sheets.
Read UK Financials Set For Another Turbulent Week
U.S. Markets:
Stock futures tumbled following the UBS news.
In the U.S., officials' main concern as markets prepare to open Monday was First Republic, which saw its shares plunge last week despite a rescue effort by the country's biggest banks.
S&P downgraded First Republic's credit rating three notches deeper into speculative grade territory, or "junk" status.
Though the biggest banks in the U.S. swooped in with $30 billion in deposits last week to help prop up First Republic, S&P said on Sunday that it may not be enough to solve the lender's "substantial business, liquidity, funding, and profitability challenges."
The bank's credit rating could be further lowered if it is unable to show progress in stabilizing deposits and recovering its franchise value, S&P said.
Some investors are hoping the turmoil in the banking sector could prompt the Federal Reserve to pause its interest-rate increases this week.
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Forex:
The dollar edged higher as investors remained cautious despite the UBS news.
"Equity markets remaining weak...are an indication that recent market turbulence is not over yet," UniCredit said. "This means the dollar will probably remain firm, with the dollar index still close to 104."
Bonds:
Eurozone government bond yields slid in early trade, with the 10-year German Bund yield falling below 2% for the first time in two months, as investors remained risk-averse due to the evolving banking turmoil.
"Markets will have a lot to digest this morning," Commerzbank said.
"The front-end bid looks set to persist as investors opt for safety in the face of still elevated uncertainty, with relief episodes probably being treated as opportunities to offload risk."
Energy:
Oil futures fell close to 3%, as the UBS news failed to assuage banking concerns.
For Brent, the losses take it to its lowest level since December 2021, while WTI is at its lowest point since August 2021.
Fed officials are also set to meet this week amid uncertainty about the path of interest rates.
"Volatility is likely to linger this week, with broader financial market concerns likely to remain at the forefront," ING said.
Metals:
Gold prices rose more than 2%, breaching the $2,000 level, while base metals fell back, as the turmoil in the banking sector continued.
"Safe-haven demand, triggered by the risk-off market reaction to the banking crisis, helps explain the lift in gold futures," Commonwealth Bank of Australia said. Dollar strength will be key to gold prices, it added.
"We consider the dollar a stronger safe-haven asset than gold. That means that if risk events are large enough we will typically see markets shift from gold to the dollar."
DOW JONES NEWSPLUS
EMEA 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.
Credit Suisse's Message to Clients: 'No Need to Take Action Right Now'
Credit Suisse Group AG has told its bankers to reassure clients that it is business as usual, even as those same employees worry about job security after rival UBS Group AG agreed to buy the troubled Swiss bank.
Within 90 minutes of the two banks announcing a $3.24 billion deal on Sunday evening, Credit Suisse gave talking points designed to guide bankers and advisers on how to respond to clients' queries about the potential merger.
Credit Suisse Bond-Wipeout Threatens $250 Billion Market
Credit Suisse Group AG's emergency merger with UBS Group AG will wipe out the bank's riskiest bonds, rattling investors in the quarter-trillion-dollar market for similar European bank debt.
About 16 billion Swiss francs, or about $17.3 billion, of the so-called additional tier 1 bonds will be completely written down, Switzerland's financial regulator, Finma, said in a Sunday statement. Credit Suisse also referenced the decision in a statement, saying it was informed by Finma that the bonds would be "written off to zero."
War in Ukraine Has Supercharged This German Weapons Maker
The war in Ukraine has made munitions maker Rheinmetall AG a key player in the global arms trade, catapulting the once low-profile German manufacturer into one of Europe's most important weapons suppliers.
Since Russia's invasion last year, Rheinmetall's shares have risen 150%, and the company has reported record earnings and orders, with the conflict's artillery-heavy nature pointing to strong future demand for its shells. The company also has begun talks with German and Ukrainian officials about building a tank factory in Ukraine.
Europe Moves to Revive Mining to Cut Reliance on China
INSHEIM, Germany-Near the Rhine river in this part of western Germany, little indicates that beneath the picturesque villages, vineyards and rolling hills there lies enough lithium to make millions of batteries for electric vehicles.
Vulcan Energy Resources Ltd., an Australian-German mining company, recently began extracting lithium from a mix of scalding water, minerals and metals almost 2 miles underground. The same hot brine has for years powered a geothermal electricity station, which Vulcan bought. The company has big expansion plans in the valley, backed by contracts to supply the auto industry.
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."
Putin Visits Mariupol in First Known Trip to Ukrainian Territory Taken by Russia During War
In his first trip to territory seized in the past year, Russian President Vladimir Putin visited the occupied Ukrainian port city of Mariupol, which for Russia is a symbol of its goal to control eastern Ukraine and for Kyiv an illustration of Russian atrocities.
Mr. Putin drove through the streets of Mariupol, which was captured by his forces in May, after arriving there by helicopter, the Kremlin said in a statement. A clip of the visit broadcast on Russian state television shows the Russian president behind the wheel of a vehicle as a Russian official reports on the city's reconstruction. The clip shows him driving through streets lighted by streetlights.
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.
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03-20-23 0557ET
