ASX set for more turmoil as traders digest banking drama

With the fate of Credit Suisse finally decided, investors on Monday morning were getting ready for another gut-wrenching week of trading.

The Australian sharemarket was bracing for more pain at the open, with ASX futures over the weekend down 98 points, or 1.4 per cent, to 6921. The losses would add to last week’s declines when the local bourse suffered its worst weekly loss since September last year, and its longest losing streak since the 2008 financial crisis, according to Commsec.

The market jitters come as veteran fund manager Anton Tagliaferro, the founder of Investors Mutual, said there was a “crisis of confidence in the international banking sector”.

“The banking system operates on trust, so when people start getting worried about counterparty risk, it’s a real issue,” Tagliaferro said on the weekend. Counterparty risk exists when there is a concern that the bank you trade with can’t meet its obligations, or is about to go bust.

Despite the jitters, a more dramatic meltdown should have been averted following emergency talks in Switzerland over the weekend, which ended early on early Monday AEDT with the announcement of global investment banking giant UBS taking over Credit Suisse in a government-brokered deal.

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UBS is paying 3 billion Swiss francs ($4.8 billion) for its rival in an all-share deal that includes extensive government guarantees and liquidity provisions. The price is less than half the 7.4 billion Swiss francs Credit Suisse was worth at the close of trading on Friday.

Apart from the fast-moving developments in the global banking sector, investors this week are focussing on the US Federal Reserve’s two-day policy gathering starting on March 21 (Wednesday AEDT), with all eyes on whether the banking fallout will prompt the world’s most-watched central bank to pause its interest rate hikes.

On the local front, Reserve Bank of Australia official Chris Kent was scheduled to speak at an event in Sydney on Monday morning, with investors looking for his up-to-date take on the Australian central bank’s policy stance and any concerns over financial market contagion.