Most Wall Street banks reported that they expect the U.S. Federal Reserve to will raise benchmark interest rates by 25 basis points at the end of its two-day meeting on Thursday, while currency markets tend to expect that the Fed will pause its aggressive moves amid concerns about an escalating global banking crisis.
In a swift reversal of expectations, money markets are pricing in a nearly 60% chance of a break following a 450 basis point gain since last March. This follows concerns of stress on the banking system from the collapse of two U.S. lenders. medium sized this month.
On Sunday, the takeover of Credit Suisse backed by industry peer UBS helped ease concerns about contagion, but uncertainty remained over the deal's impact.
A majority of economists in a Reuters poll published last week also forecast a rise of 25 basis points.
On the other hand, stock markets were a bit choppy ahead of the opening of U.S. global markets with First Republic Bank falling about 19% premarket after Standard & Poor's cut its credit rating again, to B+ from BB+, on Sunday.
Shares of UBS, , Credit Suisse fell about 5% before the U.S. market opened, while Credit Suisse shares plunged 58%. UBS announced on Sunday it would buy Credit Suisse for 3 billion Swiss francs, or $3.2 billion, as part of a deal brokered by Swiss regulators and the Swiss central bank. Other European banking stocks were also lower, with Deutsche Bank down 1.8% and ING Groep down 4.2%.
The market is now paying attention to the actions that will be taken by the Fed.
