U.S. stock futures rose on Sunday as the Swiss government engineered a forced takeover of Credit Suisse by UBS, marking the latest effort by governments around the world to stifle a crisis threatening the banking sector.
Dow Jones Industrial Average futures rose by 109 points, or 0.34%. S&P 500 futures gained 0.44% and Nasdaq-100 futures climbed 0.43%.
Investors remained on edge as the week’s trading began with regional banks still under pressure to shore up their deposit bases in the wake of the collapse of Silicon Valley Bank earlier this month. Wall Street expects more may be needed to be done to restore confidence in the banking system after U.S. regulators backstopped SVB’s uninsured deposits and offered new funding for troubled banks one week ago.
The instability in the financial sector over the past two weeks raised the stakes for the Federal Reserve’s interest rate decision on Wednesday. As of Sunday evening, there is about a 62% chance of a quarter-point increase by the Fed, according to CME Group data using fed funds futures contracts as a guide. The other 38% is in the no-hike camp, anticipating that Chairman Jerome Powell may start to ease his aggressive tightening campaign that began in March 2022 in the face of the emerging financial contagion.
UBS agreed to buy Credit Suisse for 3 billion Swiss francs, or $3.2 billion, with the combined bank to have $5 trillion in assets. Credit Suisse shares were down 21% last week. Shortly after UBS announced its takeover deal, the Fed announced it had joined with other central banks in a joint liquidity operation. The group of central banks — including the Bank of Canada, Bank of England, Bank of Japan, European Central Bank and Swiss National Bank — agreed to increase the frequency of their U.S. dollar swap line arrangements from weekly to daily.
But traders may be anxious for more to be done by regulators to stem the slide in regional banks. First Republic shares ended last week 72% lower even after a group of banks Thursday pledged to deposit $30 billion in the San Francisco institution that’s become the focus on Wall Street. The SPDR Regional Banking ETF (KRE) tumbled 14% last week.
Despite the anxieties surrounding bank stocks, the S&P 500 and Nasdaq Composite closed higher for the week as investors rotated back into technology shares that could benefit from a lower interest rate environment. Meanwhile, the Dow declined 0.15% for the week.