S&P 500 Futures Rise as UBS Takes Over Credit Suisse, Investors Wary of Regional Banks

Key Takeaways

• UBS’s acquisition of Credit Suisse boosts U.S. stock futures.
• The Federal Reserve’s interest rate decision on Wednesday could increase instability in the financial sector.
• First Republic shares plunge despite $30 billion deposit pledge from banks.

Overview

On Sunday, U.S. stock futures are mixed, with the price action driven by the forced takeover of Credit Suisse by UBS, engineered by the Swiss government. This move marked another attempt by global governments to contain the banking sector’s ongoing crisis.

At 04:12 GMT, blue chip Dow Jones Industrial Average futures are trading 32069.00, down 2.00 or -0.01%. Benchmark S&P 500 Index futures are at 3951.50, up 4.50 or +0.11% and the tech-weighted NASDAQ Composite futures are trading 12663.00, up 18.25 or +0.14%.

However, investors remain on edge as regional banks continue to shore up their deposit bases. This, following the collapse of Silicon Valley Bank earlier this month.

On Wednesday, the Federal Reserve’s interest rate decision could add more instability to the financial sector as there is a 62% chance of a quarter-point increase by the Fed, according to CME Group data.

UBS to Acquire Credit Suisse for $3.2 Billion, Boosting Global Banking Sector Stability

UBS agreed to purchase Credit Suisse for $3.2 billion, which will create a combined bank with $5 trillion in assets.

Meanwhile, the Federal Reserve announced a joint liquidity operation with other central banks, including the Bank of Canada, Bank of England, Bank of Japan, European Central Bank, and Swiss National Bank, which agreed to increase the frequency of their U.S. dollar swap line arrangements from weekly to daily.

The takeover deal is viewed as “unambiguously good for the overarching concerns about the stability of the global banking sector,” according to B. Riley Wealth Management’s Chief Market Strategist Art Hogan.

Regional Banks Suffer as Investors Flock to Tech Stocks

However, there is still concern over regional banks. First Republic shares ended last week 72% lower, despite a group of banks pledging to deposit $30 billion for at least 120 days in the embattled San Francisco institution. The SPDR Regional Banking ETF (KRE) tumbled 14% last week.

Despite the anxiety 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. The Dow declined 0.15% for the week.

“I think there’s been an overreaction to the regional banks … And that likely represents an opportunity,” said Hogan.