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Stocks closed higher on Monday as traders grew hopeful that a crisis in the banking sector may be easing. The gains followed a forced takeover of Credit Suisse by UBS engineered by the Swiss government.
The instability in the financial sector over the past two weeks raises the stakes for the Federal Reserve’s interest rate decision on Wednesday.
As of Monday, there is about a 73 per cent chance of a quarter-point increase. The other 27 per cent 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
The Dow Jones Industrial Average jumped 382.60 points, or 1.20 per cent, to close at 32,244.58. Meanwhile, the S&P 500 rose 0.89 per cent to end the session at 3,951.57. The Nasdaq Composite gained 0.39 per cent and closed at 11,675.54.
The Swiss government has come under fire from bondholders and international regulators for its handling of the $3.2bn rescue-takeover of Credit Suisse by UBS.
The two banks were forced together over the weekend by Swiss officials in a shotgun marriage that stabilised the teetering Credit Suisse but wiped out $17bn of its bonds, upending the normal priority of investors.
The decision to favour shareholders at the expense of bondholders sent a shockwave through already brittle markets on Monday morning, with investors in so-called additional tier 1 bonds fearing that they too could be sacrificed in a similar scenario at another bank.
US Regional banks rose on Monday, rebounding from big losses in the past week. Wall Street expects more action may be needed 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.
However, First Republic, the lender at the centre of last week's concerns, was down 27.3 per cent. After S&P cut its credit rating for the second time in a week, noting the $30B rescue deal has not solved the bank's challenge
The gains were also mirrored in Europe, where the Euro Stoxx Banks index closed up 1.9 per cent, and UBS erased losses of more than 14 per cent to finish 1.3 per cent higher
Overnight, all S&P500 sectors finished higher. It has been a rough ride for the Financial Sector in recent weeks, however, in yesterday’s session the KBW Nasdaq Bank index increased by 1.7 per cent, with JPMorgan Chase and Morgan Stanley gaining 0.8 per cent and 1.9 per cent respectively.
The SPI futures are pointing to a 0.7 per cent gain.
One Australian dollar at 7:35 AM is buying 67.17 US cents..
Iron ore futures are pointing to a 1.9 per cent fall.
Gold added 0.5 per cent. Silver gained 0.9 per cent. Copper rose 1.6 per cent and oil gained 1.2 per cent.
Figures around the globe
Across the Atlantic, European markets closed higher. London’s FTSE added 0.9 per cent, Frankfurt gained 1.1 per cent while Paris closed 1.3 per cent higher.
In Asian markets, Tokyo’s Nikkei lost 1.4 per cent, Hong Kong’s Hang Seng dropped 2.7 per cent while China’s Shanghai Composite closed 0.5 per cent lower.
Yesterday, the Australian sharemarket closed 1.4 per cent lower at 6,899.
Brisbane Broncos (ASX:BBL) is paying 1.5 cents fully franked
Credit Corp Group (ASX:CCP) is paying 23 cents fully franked
Cochlear (ASX:COH) is paying 155 cents 35 per cent franked
K & S Corporation (ASX:KSC) is paying 10 cents fully franked
Latitude Group (ASX:LFS) is paying 4 cents fully franked
Reece (ASX:REH) is paying 8 cents fully franked
Southern Cross Electrical Engineer (ASX:SXE) is paying 1 cent fully franked
Amcor PLC (ASX:AMC)
Dalrymple Bay Infrastructure (ASX:DBI)
Hansen Technologies (ASX:HSN)
HiTech Group Australia (ASX:HIT)
REA Group (ASX:REA)
Tabcorp Holdings (ASX:TAH)
Sources: Bloomberg, FactSet, IRESS, TradingView, UBS, Bourse Data, Trading Economics, CoinMarketCap.
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Source: Finance News Network