The week finally started with less negativity

Is banking sector cooling down?

The S&P 500 increased on Monday as UBS agreed to acquire Credit Suisse, boosting optimism toward banking stocks only one day before the Fed’s two-day meeting. In an emergency rescue transaction, Switzerland’s largest bank, UBS, agreed to acquire Credit Suisse for $3.2 billion. As a result, the bank stock rose more than 3%

The Credit Suisse rescue agreement boosted investor sentiment toward banks, with regional banks Fifth Third Bancorp and Lincoln National rising around 5%. Following the recent failure of Signature Bank, shares of New York Community Bancorp increased by more than 33% as its subsidiary, Flagstar Bank, agreed to acquire a substantial portion of the bank.

First Republic Bank, meanwhile, was not among the gainers and fell by more than 41% after Standard & Poor’s lowered the bank’s creditworthiness further into junk territory due to continued liquidity issues. The rating comes days after 11 banks invested $30 billion in the regional bank. According to S&P 500, the measure is unlikely to alleviate the First Republic’s liquidity issues, and a further downgrade is possible.

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Microsoft and Amazon declined, dragging tech lower on Monday, with the latter reporting 9,000 job layoffs in its Amazon Web Services cloud hosting segment. A rise in US Treasury yields also capped the tech sector prior to Tuesday’s start of the Fed’s two-day meeting. The S&P 500 increased by 0.7%, while the Dow Jones increased by 1%. The Nasdaq gained 0.2%.

US 10-year treasury yield chart, source: tradingview.com

The Fed will convene its March monetary policy meeting on Tuesday and publish its conclusion on Wednesday. Traders’ bets now favor a 25 bps rate increase. A modest 25 basis point increase will bring the federal funds rate to a range of 4.75 to 5.00%. Any abrupt change in the policy outlook would be a response to the current market turmoil, which has exposed banks’ weakness to fast rising borrowing rates.

The US dollar stays under pressure

EUR/USD climbed beyond 1.0700, approaching the peak from the previous week, while EUR/CHF rocketed to 0.9960. The US dollar index was unable to pull back some of the daily losses and closed 0.4% lower below the 103 mark.

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GBP/USD breached its five-day trading range and surpassed 1.2270, its highest level since early February. On Thursday, the Bank of England will publish its monetary policy decision. AUD/USD maintains its position above 0.6700 after recovering from 0.6660. The Reserve Bank of Australia (RBA) will publish its most recent meeting’s minutes.

USD/CAD fell to 1.3650, matching last week’s low, a critical support region. On Tuesday, Canada will announce its Consumer Price Index for February, which is expected to grow 0.6%

Oil crudes are slowly recovering from the carnage

Even while the financial storm may still be raging, a respite in its severity allowed investors who were long oil to get a breath of fresh air, as crude prices rebounded following a 15-month bottom. This marked a catastrophic 13% drop last week.

WTI crude finished the day up 1.4%, at $67.64 a barrel. WTI hit a low of $64.38 earlier in the day, the lowest level since December 2021. The price of US crude dropped by about $10 per barrel last week.

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Brent crude finished at $73.79, 1.1% higher. After ending last week down 13%, the global crude benchmark fell to a 15-month bottom of $70.13 early on Monday.

The precious metals solidified their safe haven status as gold briefly hit $2,000 on Monday, finally settling it’s April contract at $1,982 with 0.47% in the green. Silver futures almost hit $22.9 today, closing at $22.672 with a 0.93% gain.