US bank stocks were higher on Monday, ahead of the Federal Reserve’s decision on interest rates, despite concerns about lenders such as First Republic. The KBW Nasdaq Bank index rose 2.8%, with heavyweights such as Citigroup and JPMorgan Chase up by 1.7% and 1.9% respectively. European markets saw the Euro Stoxx Banks index rising 2.9%, with UBS up 14% and Société Générale falling 0.7%. Investors are eagerly awaiting the Fed’s midweek decision, pricing in a 55% chance of a 0.25% rise, and a 45% probability of no change. The Credit Suisse catastrophe is adding to market anxiety.
Goldman Sachs has predicted that the present crisis in the banking sector will limit central banks’ abilities to maintain rising inflation rates. The bank has also cut its eurozone economic growth forecast by 0.3%. The European Central Bank is now expected to raise rates by a quarter of a point in May, compared to its previous estimation of a half point. Meanwhile, Syz Bank’s Chief Investment Officer, Charles-Henry Monchau, has claimed that the Swiss regulator’s demand that Credit Suisse write down $17bn of its additional tier 1 bonds as part of its deal with UBS is undermining the bonds’ hierarchy of claims in the event of a banking failure.
There were heavy declines in Asia, with HSBC shares in Hong Kong falling by 7.1%. This led Gary Ng, senior economist at Natixis in Hong Kong, to claim that the Credit Suisse story was a wake up call for investors about the real risks of AT1 bonds. In Europe, the Stoxx 600 index rose 1.2% whilst the FTSE 100 was up 1.2% and the Cac40 in Paris added 1.6%. The current market anxiety is likely to continue for some time and further fluctuations are possible until the central banks are able to effectively address the crisis, thereby creating much needed stability.