There is never a dull moment in the markets lately, and the latest news concerning the UBS buyout of Credit Suisse has given investors plenty of food-for-thought entering the new trading week. The announcement that UBS will buy Credit Suisse for (for $3.2b) with the Swiss National Bank pledging a loan of up to 100 billion Swiss Francs may have some effect in reducing anxiety levels in financial markets, but it may only be short-lived, with traders left wondering which bank could be next to hit the headlines for all the wrong reasons. So, while this UBS/Credit Suisse news when taken in isolation is a positive development in terms of banking stability and reducing contagion risks, the question of ‘so what comes next’ is keeping a lid on any potential market buoyancy. Particularly with the next FOMC rates decision just around the corner (this week on Thursday 23rd US time).
A rise in the US futures did little to sway Asian markets, with the ASX200, Hang Seng and Nikkei trading in negative territory on Monday. In Australia, resource stocks were among the better performers in the market, spurred on by strong recent moves in gold. The precious metal has been revelling in its safe-haven status given the global banking sector uncertainty and was last seen trading around US$1975 during Asian market hours. If market scepticism over the scope of financial sector fragility persists, the precious metal could soon be knocking on the door of the US$2000 level. However, much will depend on what action or otherwise the FOMC takes regarding US rates this week.
Another beneficiary of the surging gold price has been the Aussie Dollar which has finding some form on the way to retaking the US$0.67 level in recent days. Though during Asian trading hours, the AUDUSD did retreat from the session highs (of 0.6730) to back below US$0.67 as the greenback found some bids courtesy of declining risk sentiment. Whether the AUD can consolidate on or around the 0.67 could be key in determining if further gains can be found beyond the interim resistance level at 0.6730.
Overall, traders remain on the lookout for any signs that systemic banking issues may become more widespread, and this is keeping market risk-tolerance subdued. So, while the latest UBS/Credit Suisse news can be seen as a welcome development and better than the alternative scenario of no buyout, it is unclear which if any other instances of big banks encountering financial troubles will arise next and it is this uncertainty which is keeping traders on edge.