U.S. stocks slip, bonds rally as banking stress deepens

European stocks fell and U.S. equity futures retreated as the emergency weekend sale of Credit Suisse Group AG to UBS Group failed to soothe market jitters over the health of the banking system.

The Stoxx Europe 600 index dropped 0.7 per cent, with a sub-index of banking stocks wiping out its remaining gains for the year. UBS shares fell as much as 16 per cent, while Credit Suisse sank 60 per cent. Contracts on the S&P 500 edged lower, with major lenders JPMorgan Chase & Co., Bank of America Corp., Wells Fargo & Co. and Citigroup Inc. all down in U.S. premarket trading. Nasdaq 100 futures steadied. A gauge of Asian shares fell by more than 1 per cent.

Policymakers are rushing to shore up confidence after the problems at Credit Suisse and the collapse of Silicon Valley Bank added to broader concerns over financial stability. The Federal Reserve and five other central banks announced coordinated action to boost liquidity in U.S. dollar swap arrangements to ease strains in the global financial system. Traders are also assessing what impact recent events will have on the path of Fed policy tightening in the runup to its next rates decision due Wednesday.

“Markets are anxious about which bank is next to fall under trouble, as the whole system is based on confidence and events can escalate quickly, as we have seen with recent cases,” said Janet Mui, head of market analysis at RBC Brewin Dolphin. “There will be many questions and doubts on how UBS will integrate Credit Suisse given the size of the combined business.”