US Open: Stocks waver after UBS takeover deal/coordinated CB action/banking worries, Yen thrives on risk aversion flows, Bullish oil bets abandoned, Gold $2k, Bitcoin closer to $40k than November low

Looks like it will be another long week on Wall Street.  It was a busy weekend after a Credit Suisse bailout and a coordinated effort by the Fed and other central banks to boost dollar liquidity.  Despite a couple major weekend attempts to contain the risks hitting the banking system, US stocks are wavering as risk aversion won’t be going away until markets are confident that the Fed is done with their rate hiking campaign.  The banking system still doesn’t have any confidence as Wall Street tries to send yields sharply lower. It looks like credit conditions will continue to tighten while monetary policy conditions are expected to loosen as the economy heads to a recession.

First Republic

First Republic shares continue to slide after another downgrade from S&P and as investors still remain skeptical despite the $30 billion bailout given from a group of America’s largest banks.  Investors are skeptical First Republic will be able to attract any deposits, which will likely remain a problem for small and medium sized banks. 

Credit Suisse/UBS

Time was running out on Credit Suisse and a weekend deal had to get done.  Swiss authorities were able to provide enough assurance for UBS to take over its biggest rival Credit Suisse in a deal worth more than 3 billion Swiss francs ($3.23 billion).  It was either do this deal or risk going the nationalization way or wind down the bank. 

UBS got a pretty good deal when you consider they got liquidity lines and a tremendous amount of support from the government.  Banking stocks however still remain vulnerable as contagion fears won’t be quelled until we see confidence that the major central banks are done tightening. 

FX

The dollar got a modest boost after a symbolic global central bank move boosts liquidity in US dollar swap arrangements. Traders were so focused on the Credit Suisse bailout that they were surprised to see central banks coordinate to open up swap line operations to prevent any shortages of dollars.  After the FX world processed what took place to start the week and saw limited usage of the new support provided for banks, risk aversion resumed. The Japanese yen looks like the preferred safe-haven currency and that should remain the case as global bank fears won’t be goin away and as central bank tightening from here on out could trigger harsher recessions.

Oil

Crude prices are tumbling after Goldman Sachs abandoned their $100 target this year.  Goldman is concerned over the stress to the banking system, which is driving their call for the Fed to keep rates steady on Wednesday.  Oil still looks heavy because it looks like too many traders are expecting the Fed to pause going into this meeting and that means a much more severe recession could get priced in if the Fed hikes or keeps the door open that they could at the next meeting. 

Gold

Gold traders are celebrating as persistent banking worries have some traders scrambling towards the precious metal.  Long-term gold bulls are celebrating, probably sharing the Leonardo Di Caprio party celebration meme as Fed rate cut bets are now fully pricing in a rate cut at the June FOMC meeting. 

Gold might struggle to extend this rally until we get past the FOMC meeting, which might contain a surprise hike and continued voiced confidence that they have the tools to deal with all the current financial stability concerns.   Once the FOMC dust settles, traders should find out quickly if gold has enough momentum to retest the record highs seen a few years ago.

Crypto

Bitcoin is rallying as Wall Street becomes more aggressive in pricing Fed rate cuts and as banking sector worries drive some into alternative investments away from traditional financing. Bitcoin in early trade was closer to $40,000 than it is to the November low.

Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at info@marketpulse.com. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc.