Global markets are bracing for what looks set to be another tumultuous week with a focus on the Federal Reserve’s policy response to the US bank turmoil and the fate of Credit Suisse Group AG in Switzerland as rescue talks continued over the weekend.
Currencies will give an early indication of investor sentiment, with trading in the Asia-Pacific region set to get underway at about 5 a.m. Sydney time. Traders will watch how the Swiss franc reacts to the flurry of weekend activity that saw rival UBS Group AG agreeing to buy Credit Suisse in a government-brokered deal. The Swiss currency has lost some of its haven appeal with the country’s banking sector being at the center of the financial turmoil.
Volatility skyrocketed last week as fears spread about the health of the global financial system amid the effects of the Fed’s yearlong campaign to fight inflation. Concern about potential contagion sent investors scurrying for haven assets and forced a radical rethink about how tight the Fed — and other central banks — will be able to keep policy.
Front-end Treasury yields were whipsawed by more than 20 basis points every day as investors plowed cash into US securities. US bank equities took a beating and technology stocks turned out to be something of a refuge. At the close of trade last week, swap markets indicated around a two-in-three chance that the Fed would opt to push ahead with a quarter-point interest-rate increase at its meeting Wednesday, although pricing suggested that it’s likely to end its tightening cycle there.
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