June 2, 2023

European Stocks Lower; Banking Sector Slumps After Swiss Consolidation

European stock markets traded sharply lower Monday, with the banking sector hard hit in the wake of the deal to consolidate the two Swiss banking giants, UBS and Credit Suisse . At 05:00 ET (09:00 GMT), the DAX index in Germany traded 0.7% lower, the CAC 40 in France dropped 0.3% and the FTSE 100 in the U.K. fell 0.9%. Swiss banking giant UBS (SIX:UBSG) announced on Sunday that it will buy embattled peer Credit Suisse (SIX:CSGN) for around $3.3 billion, with the assistance of the Swiss authorities, hoping that this will ease the strain on the global banking system. Concerns had been growing about Credit Suisse’s survival as it faced growing liquidity difficulties with investors withdrawing funds in the wake of a series of crises. However, any hope that this deal would soothe the market’s concerns has dissipated Monday, with UBS stock falling over 11% and Credit Suisse cratering over 60%, dragging the rest of the European banks lower. UBS’s announcement in the wake of Sunday’s merger that it will write down about $17B worth of Credit Suisse bonds has caused more ructions as these bondholders face hefty losses. These concerns have overshadowed the decision of the Federal Reserve and other major central banks to open up emergency dollar liquidity lines to support beleaguered lenders. Another potential source of risk for the market this week is the Federal Reserve’s policy-setting meeting, with the U.S. central bank widely expected to increase interest rates again on Wednesday, this time probably by 25 basis points. The Bank of England also meets this week amid doubts whether it will signal an end to its hiking cycle, while the Swiss National Bank is likely to hike on Thursday by 50 basis points even amid the turmoil in the country’s banking system.

 

Investors Will be Keeping an Ear Open For Comments From ECB President.

Christine Lagarde as she appears before the European Parliament’s economic committee. In other corporate news, Electrolux (ST:ELUXb) stock rose 0.8% after Europe’s biggest appliances maker said on Monday it was on track to slash costs at underperforming plants in North America as part of its ongoing efficiency program. Oil prices fell Monday, continuing last week’s hefty selloff, on concerns the ongoing banking crisis would hurt global economic activity and thus crude demand this year. Iraq’s Prime Minister Mohammed Shia al-Sudani and OPEC Secretary General Haitham Al Ghais met over the weekend, and stressed the need for coordination among oil-exporting nations to ensure prices do not fluctuate in too extreme a manner, according to a statement. A ministerial committee of OPEC and producer allies including Russia, known as OPEC+, is set to meet on April 3, with a full ministerial meeting planned for June 4. By 05:00 ET, U.S. crude futures traded 2.4% lower at $65.32 a barrel, after a 13% decline last week, its biggest weekly drop since last April. The Brent contract dropped 2.3% to $71.33 after a near 12% loss last week, its biggest weekly fall since December.

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