After a dramatic weekend of intervention by authorities that saw UBS Group AG agree to buy Credit Suisse Group AG and central banks boost dollar liquidity, the markets signaled a modest return to risk.
None of Credit Suisse Said to Push Back against UBS'$1 Billion Offer.
Crude oil moved higher after collapsing by 12% last week, while copper futures advanced. As the week s trading kicked off, gold fell as much as 1.1% as it benefited from the turmoil with a rally toward $2,000 an ounce.
After hitting a new record last year following Russia's invasion of Ukraine, the Bloomberg Commodities Spot Index lost nearly a quarter of its value because of concerns over a global slowdown, higher interest rates and a huge selloff in natural gas. The upheaval in the banking sector, which was caused by the collapse of several US banks and subsequent crisis at Credit Suisse, then deepened the rout, although bullion was a beneficiary.
With a crisis of confidence threatening to spread across financial markets, the Swiss government brokered a deal for Credit Suisse over the weekend, including a guarantee for potential losses from assets UBS is taking over. The Federal ReserveFederal Reserve, along with five other central banks, announced a coordinated action to boost US dollar swap arrangements.
Markets are cheered by Swiss authorities having brokered a deal between UBS and Credit Suisse to avoid a systemic contagion, while the Fed and five other central banks are adding dollar liquidity, said Charu Chanana, market strategist for Saxo Capital Markets Pte in Singapore. Banking-sector concerns will be a big factor in the week ahead, she said.
The slump in commodities came despite China's rapid economic rebound after officials ditched Covid Zero policy late last year. The central bank cut the amount of cash that banks must keep in reserve last week to support lending and strengthen the recovery.
The outcome of a Federal Reserve rate-setting meeting on Wednesday and how the Credit Suisse deal is received will determine the trajectory for raw materials this week, as well as how the details are digested. Market watchers now expect a smaller increase, or perhaps even a pause, despite the fact that US policy makers had signaled their willingness to raise rates by 50 basis points to contain still-hot inflation before the banking crisis erupted.
In their weekend statement, the Fed and partner central banks said they will increase the frequency of seven-day maturity operations from weekly to daily. They said the arrangements will act as an important backstop to help alleviate the strains in global funding markets.
An analyst at Guotai Junan Futures Co. said the UBS-Credit Suisse deal is lifting sentiment across the markets, though investors are still cautiously watching the evolution of the banking crisis.
With help from Winnie Zhu and Yongchang Chin.