The European stock market took a sharp dive Monday, with banks being particularly hard-hit in the wake of the consolidation of the two Swiss banking giants, UBS and Credit Suisse.
The DAX, CAC 40, and FTSE 100 all traded lower at 09:00 GMT, with the DAX down 0.7%, the CAC 40 down 0.3%, and the FTSE 100 down 0.9%.
Swiss banking giant UBS (SIX:UBSG) announced on Sunday that it will purchase embattled peer Credit Suisse (SIX:CSGN) for around $3.3 billion, with the assistance of the Swiss authorities. UBS hopes that this will ease the strain on the global banking system.
Investors were withdrawing funds from Credit Suisse due to concerns about its ability to survive in the face of a series of crises.
Despite the initial optimism surrounding the deal, the market reaction on Monday has been negative, with UBS and Credit Suisse both experiencing significant stock price declines. This has had a knock-on effect on other European banks.
UBS’s announcement that it will write down about $17B worth of Credit Suisse bonds has caused more ructions among bondholders, who face hefty losses.
The decision of the Federal Reserve and other major central banks to open up emergency dollar liquidity lines to support beleaguered lenders has been overshadowed by concerns about the potential implications of this move.
One potential source of risk for the market this week is the Federal Reserve’s policy-setting meeting. The U.S. central bank is widely expected to increase interest rates on Wednesday, most likely by 25 basis points.
This week, the Bank of England will meet to discuss whether or not to raise interest rates, while the Swiss National Bank is expected to raise rates by 50 basis points, despite the recent turmoil in Switzerland’s banking system.
Investors will be closely monitoring comments from ECB President Christine Lagarde as she testifies before the European Parliament’s economic committee.
Electrolux shares rose 0.8% on Monday after the company said that its cost-cutting measures at underperforming plants in North America were on track.
Oil prices fell on Monday, continuing the selloff from last week. The ongoing banking crisis is causing concerns about global economic activity and how that will affect crude demand this year.
The Prime Minister of Iraq and the OPEC Secretary General met over the weekend to discuss the need for oil-exporting nations to coordinate their efforts in order to avoid extreme price fluctuations.
An OPEC ministerial committee of producer allies, including Russia, is set to meet on April 3, with a full ministerial meeting planned for June 4.
At 05:00 ET on Monday, U.S. crude futures were trading at $65.32 a barrel, a 2.4% decline from the previous day. This follows a 13% decline last week, the biggest weekly drop since last April. The Brent contract, a benchmark for international oil prices, was also down 2.3% to $71.33 after a nearly 12% loss last week, its biggest weekly fall since December.
Gold futures rose 1.3% to $1,999.10/oz, while EUR/USD traded 0.1% lower at 1.0663. This was likely due to investors seeking a safe haven asset amid concerns about the global economy.