Markets stabilise as investors digest Credit Suisse takeover

Asian markets rose on Tuesday after Wall Street staged a rebound overnight as the historic takeover of Credit Suisse Group AG soothed concerns over the global banking sector.

Switzerland’s largest bank UBS Group AS has agreed to purchase Credit Suisse for $3.2 billion in what’s being labelled a “shotgun marriage”. But it is aimed at containing the panic and jitters currently around the financial system. Although the latest developments have lifted sentiment, the overall mood remains fragile with investors likely to remain guarded ahead of the Fed meeting tomorrow. In the currency space, the dollar steadied during early trade and could end a three-day losing streak if bulls fight back. In the previous session, oil prices rebounded after tumbling to their lowest levels since 2021 while gold punched above$2000 for the first time since March 2022 before ending the session 0.5% lower.

We expect financial markets to remain volatile and highly sensitive to any fresh news concerning the global banking sector. With fears over the crisis easing, we could see a modest return in risk appetite, lending support to global stocks. Shifting our focus elsewhere, this will be a big week for markets with the US Federal Reserve (Fed), Bank of England (BoE), and Swiss National Bank (SNB) policy meetings in focus. It will be interesting to see what the SNB has to say about the Credit Suisse developments, especially after the historic takeover.

Fed meeting in focus

The upcoming Fed meeting could be tough as the central bank decides whether to focus on solid macroeconomic data or the stability of the financial system.

Markets expect the Federal Reserve to raise interest rates by 25 basis points this month, with the chances of this decision currently priced at 74%, according to Fed funds futures. Key for markets will be what the central bank has to say about the recent developments concerning the SVB collapse and Credit Suisse drama, especially after the UBS takeover.

If the Federal Reserve surprises markets by leaving rates unchanged, this could signal the end of the rate hike cycle with the next move being a cut in rates. Such a development is likely to deal a heavy blow to the dollar along with Treasury yields. Markets might also take it as a sign that the Fed fears contagion risks in markets via the banking sector, and this would likely see a sharp sell-off in stock markets. Whatever the outcome of the Fed meeting, it may influence the dollar’s outlook for the rest of March.

Taking a quick look at the Dollar Index (DXY), it remains under pressure on the daily charts. The recent close below 103.00 may signal further downside with 102.30 acting as the next key point of interest. Should prices close back above 103.00, this may invite a move towards 104.00.

Currency spotlight: GBP/USD

The Bank of England policy meeting on Thursday could be tense given the latest turmoil in financial markets.

We could witness a battle between doves and hawks as both charge into the meeting well-equipped and ready to attack. On one side of the equation, stalling wage growth has fueled speculation about the MPC’s tightening cycle coming to an end. However, UK inflation is still well above the 2% target with the latest figures on Wednesday forecast to show prices cooling to 9.9% in February. If the BoE decides to leave rates unchanged this month, this could weigh heavily on the pound. Talking technicals, the GBPUSD is bullish on the daily charts. The daily close above 1.2250 could signal further upside. However, where the currency pair concludes this week will be heavily influenced by the Fed and BoE meetings.

Commodity spotlight – Gold

Gold kicked off Tuesday’s session on a mellow note, a complete contrast from the previous day.

On Monday, the precious metal punched above $2000 for the first time since March 2022 as concerns over the banking system boosted the appetite for safe-haven assets. Given how fears of a full-blown crisis later eased following the historic takeover of Credit Suisse, this blunted appetite for gold. Nevertheless, the precious metal is set to glow amid the fragile sentiment with expectations around a less aggressive Federal Reserve limiting downside losses. Looking at the technical picture, gold could experience a technical pullback towards $1955 before bulls take further action. Should $1955 prove to be unreliable support, prices may decline towards $1935, $1915, and $1900, respectively.