(Bloomberg) — US and European equity futures wiped out gains and the dollar fluctuated as investors weighed efforts to safeguard the global banking system. The two-year Treasury yields retraced an earlier rebound.
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Positive early readings on UBS Group AG’s agreement to buy Credit Suisse Group AG and central bank moves to boost dollar liquidity gave way to a more cautious sentiment as the trading day progressed.
Financial stocks in Asia slid, led by HSBC Holdings Plc, whose shares dropped more than 6% in Hong Kong on concern over risky bond exposures related to Credit Suisse. The additional tier-1 bonds issued by some Asian banks fell by a record after a Swiss regulator earlier said $17 billion of such AT1s from Credit Suisse would be wiped out.
Equities benchmarks for Australia, Japan and Hong Kong extended declines. Contracts for the S&P 500 gave up all of its gain for Monday after the US index dropped in excess of 1% on Friday, dragged down by the financial sector.
A dollar gauge swung between small gains and losses. Currencies including the yen, the Australian and the New Zealand dollars dropped in a choppy trading. The Swiss franc and the euro also fluctuated.
The policy-sensitive two-year Treasury yield, which slumped over 30 basis points on Friday, erased an earlier rise of as much as 18 basis points. Traders are trying to assess the Federal Reserve’s next move amid the recent financial instability and a softer-than-expected reading on inflation expectations.
Much of the debate in markets is now focused on whether the Fed will deliver another quarter-point hike or pause at its March 21-22 meeting. Traders no longer see much chance of a bigger half-point hike that Chair Jerome Powell had put on the table just before concerns about financial stability emerged.
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JPMorgan Asset Management Chief Investment Officer Bob Michele said the effects of quantitative tightening by the Fed were starting to bite and he was now “more confident that we are headed to recession.”
“This is still the start of this taking hold. For sure…
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