WALL Street's main indexes were set for a subdued open in volatile trading on Monday as investors weighed a state-backed takeover of Credit Suisse and the odds of the Federal Reserve keeping interest rates unchanged this week.
Traders have raised bets of the Fed likely hitting a pause on rate hikes on Wednesday to ensure financial stability as bank sector troubles triggered by the collapse of Silicon Valley Bank and Signature Bank threaten to snowball.
Over the weekend, UBS agreed to buy rival Credit Suisse for $3.23 billion, in a shotgun merger engineered by Swiss authorities to avoid more market-shaking turmoil in global banking.
U.S.-listed shares of Credit Suisse plummeted 57.9% in premarket and were set to open at a fresh record low, while those of UBS lost 3.5%, as focus shifted to the hit to some Credit Suisse bondholders from the acquisition.
"Market’s been digesting the shotgun wedding between UBS and Credit Suisse. Systemic risks are a little bit more minimized (and) everyone is just looking forward to what the Fed’s going to do," said Matt Orton, chief market strategist at Raymond James Investment Management.
"The Fed really is between a rock and a hard place because it's got to stay committed to monetary policy. It's worked hard to regain its credibility and this banking issue really throws a wrench into it."
Traders' bets are now tilted towards a no-hike scenario, with 43% expecting the Fed to raise rates by 25 basis points.
Investors also await economic data including existing home sales, weekly jobless claims and durable goods this week to gauge the strength of the U.S. economy.
U.S. stock futures reversed course to rise marginally in choppy trading. At 8:24 a.m. ET, Dow e-minis were up 9 points, or 0.03%, S&P 500 e-minis were up 0.75 points, or 0.02%, and Nasdaq 100 e-minis were up 1.75 points, or 0.01%.
Top central banks also moved on Sunday to bolster the flow of cash around the world, with the Fed offering daily currency swaps to ensure banks in Canada, Britain, Japan, Switzerland and the eurozone would have the dollars needed to operate.
Big U.S. banks such as JPMorgan Chase & Co, Citigroup and Morgan Stanley seesawed between losses and gains.
Regional bank First Republic Bank slid 19.2%, following a downgrade by S&P Global and a report of more fundraising that fanned worries about the bank's liquidity despite a $30-billion rescue last week.
PacWest Bancorp was among the rare bright spots, jumping 19.7%, after the bank said deposit outflows had stabilized and its available cash exceeded total uninsured deposits.
The S&P Banking index and the KBW Regional Banking index on Friday logged their largest two-week drop since March 2020.
Among other stocks, Bed Bath & Beyond dropped 14.2% after seeking shareholder approval for a reverse stock split. - Reuters
