Stock futures slip, but off worst levels, as traders eye banking sector woes after Credit Suisse deal

What’s driving markets

Investors hoping that UBS
UBS,
-5.50%
buying its beleaguered Swiss peer Credit Suisse
CS,
-6.94%
would draw a line under banking sector angst will be disappointed as the new week begins.

After an initial rally late on Sunday, U.S. equity futures have reversed, but are off session lows. The Euro Stoxx bank index
SX7E,
-1.65%
fell to a three-month low, though pre-market trading shows a mixed performance by U.S regional banks.

Traders have become concerned that the Federal Reserve’s sharp hiking of interest rates over the past 12 months — as it looks to combat inflation still running at three times its 2% target — has caused severe difficulties for parts of the financial sector.

“[C]oncerns that aggressive monetary policy had a significant impact on the economy, banking business and human behavior, in general, cannot be overlooked and is not seen in balance sheets yet. From that perspective, uncertainty could remain high for quite some time, even if recent bank support measures succeed,” said Stephen Innes, managing partner at SPI Asset Management.

Perceived havens were being bought, with gold
GC00,
+0.72%
at one point moving above $2,000 an ounce, and bitcoin
BTCUSD,
+1.14%
topping $28,000.

However, the dollar
DXY,
-0.16%,
which often rallies at times of global market anxiety, is little changed, reflecting falls in short-term Treasury yields
TMUBMUSD02Y,
3.773%
as traders increase bets that the Fed will have to leave interest rates where they are after its policy meeting on Wednesday.