by Laetitia Volga
PARIS (Reuters) – Wall Street is expected to fall moderately and European stocks rise mid-session after a morning spent in the red with heavy losses suffered by bank stocks following the merger between UBS and Credit Suisse.
Futures contracts signal a decline of 0.07% for the Dow Jones, 0.1% for the Standard & Poor’s-500 and 0.15% for the Nasdaq.
In Paris, the CAC 40 gained 0.72% to 6,975.29 at 12:17 GMT after falling below 6,800 points for the first time since January 6. In Frankfurt, the Dax takes 0.46% and in London, the FTSE 0.42%.
The pan-European FTSEurofirst 300 index rose by 0.49%, the euro zone’s EuroStoxx 50 by 0.69% and the Stoxx 600 by 0.32%.
The latter lost up to 1.96% in session and reached its lowest level since the beginning of the year, the emergency orchestrated rescue of Credit Suisse, bought by its great rival UBS, caused a wave of concern on European places.
Investors were alarmed by the Swiss authorities’ decision to favor Credit Suisse shareholders in the operation before holders of so-called AT1 (“Additional Tier 1”) or CoCo (“contingent convertible”) bonds, the value of this risky portfolio being reduced to nil against a total of 17 billion dollars previously.
“We’re surprised how they treat AT1 capital,” said Rabobank strategist Teeuwe Mevissen. “Considering the seniority of the two, stockholders should be the first to lose their money. Market participants are confused and the decision comes with great uncertainty.”
Traders said the rebound in equities was driven by cheap buybacks, covering short positions and reassuring comments from European Union bond supervisors.
In addition to the banking record, attention is also focused on the Federal Reserve’s monetary policy decision on Wednesday and according to CME’s FedWatch Barometer, traders are torn between the likelihood of a quarter-point rate hike and a status quo.
Goldman Sachs favors the second option because of the tensions weighing on the banking system.
VALUES IN EUROPE
The Stoxx banks index lost 1.15%, against -6% at the lowest of the day. Credit Suisse shares are trading at 0.7598 Swiss francs, down 59.15% from Friday’s close. And UBS fell 5.11%.
In Paris, Credit Agricole, BNP Paribas and Société Générale yield from 1.40% to 3.49%. HSBC in London or Deutsche Bank and Commerzbank in Frankfurt are also reducing their losses but still dropping more than 2%.
Among the contributors to the rise in the CAC, Thales gains 2.86% supported by a recommendation from JPMorgan to “outperform” against “neutral” previously.
The luxury giants Kering, LVMH and Hermès advance from 1.12% to 2.25%.
RATE
Eurozone and U.S. government bond yields pare losses as investors’ flight to safe havens eased on concerns that recent measures could reduce risks of a banking crisis in Europe .
In a concerted effort, the world’s major central banks have decided to improve the supply of US dollars to global markets by increasing the frequency of currency swap transactions.
Community bloc banks borrowed just $5 million from the ECB on Monday through this upgraded swap line.
The yield on the ten-year Bund fell to 2.073%, after falling below 2% in the session for the first time since mid-January. On the US market, the yield of Treasuries with the same maturity lost more than three basis points to 3.4061%.
“The rate outlook is uncertain as we don’t know the level of contagion between banks and whether all of this will have an impact on the real economy affecting ECB policy,” said Antoine Bouvet, at ING. “Central bank actions are helpful for liquidity and the banking system.”
CHANGES
The decline in US yields is accompanied by a decline in the dollar, 0.24% against a basket of currencies.
The euro was up 0.37% against the dollar at $1.0705.
OIL
Oil prices fell to their lowest level in 15 months as investors worried about demand amid turmoil in the global banking sector and monetary tightening by central banks.
Brent fell 1.21% to 72.09 dollars a barrel and US light crude (West Texas Intermediate, WTI) 1.32% to 65.86 dollars.
(Laetitia Volga, editing by Kate Entringer)
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