Traders return to risk markets as steps to shore up system boost confidence
Fears of a global banking meltdown looked to ease after Swiss lender UBS agreed to buy its beleaguered rival Credit Suisse for $3.23 billion over the weekend.Weakness in the pound also aided the exporter-heavy FTSE 100, while the more domestically-focussed FTSE 250 midcap index added 0.9%.
Appetite for risk is also being fuelled by expectations that the Federal Reserve may adopt a more cautious policy approach when it decides on interest rates on Wednesday. Fed bets are settling around a quarter-point hike as cracks in the global banking industry are seen discouraging more aggressive tightening. The policy-sensitive two-year US Treasury yield ended Monday 14 basis points higher, just below 4 per cent. That’s also the level where swap traders currently see the Fed’s benchmark rate ending the year — a whole percentage point below the central bank’s own estimate in December.
“Further rate hikes are no longer warranted, in our opinion,” Ed Yardeni, president of Yardeni Research Inc., wrote in a note. Fed Chair Jerome Powell will have to acknowledge that “the crisis confirms that interest rates are sufficiently restrictive and that financial conditions are rapidly getting tighter,” he said.
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