A rally in European stocks eased in morning trade on Friday, as investors’ concerns over the region’s banks ate away at the boost of the US rescue package to shore up struggling lender First Republic Bank.
The region-wide Stoxx 600 was up 0.6 per cent, while Germany’s Dax rose 0.6 per cent and France’s Cac 40 climbed 0.9 per cent. The UK’s FTSE 100 added 0.8 per cent.
The Euro Stoxx Bank index, which experienced major sell-offs during the week, had risen as much as 2.3 per cent in early trade but fell back to trade 0.5 per cent higher.
Credit Suisse gave up early gains to trade 4.6 per cent lower even as the Swiss National Bank pledged liquidity support to the lender on Wednesday.
US futures eked out small gains following news that struggling bank First Republic will be shored up by a consortium of banks that will inject $30bn into the lender. Contracts tracking the S&P 500 and the tech-heavy Nasdaq both rose 0.1 per cent.
JPMorgan Chase, Bank of America, Citigroup and Wells Fargo will each deposit $5bn. Goldman Sachs and Morgan Stanley will each put in $2.5bn while BNY Mellon, PNC Bank, State Street, Trust and US Bank will deposit $1bn each. The S&P 500 on Thursday had its biggest one-day increase since January.
“US intervention at the weekend is helping to limit contagion fears. What the market is telling us is that this is not systemic, but it is fundamentally hard to assess because [there is] no long-term solution for the time being,” said Nadège Dufossé, global head of multi-asset at Candriam.
Sovereign debt markets were muted as investors continued to weigh central banks’ appetite to raise interest rates to combat inflation while there was uncertainty in the banking sector.
The European Central Bank on Thursday announced its decision to raise interest rates by 50 basis points but it ditched a previous commitment to keep “raising interest rates significantly at a steady pace”.
Yields on two-year Treasury bills, which are most sensitive to interest rate expectations, rose 0.04 percentage points to 4.13 per cent and 10-year note yields fell 0.04 percentage points to 3.54 per cent.
Two-year Bund yields rose 0.04 percentage points to 2.6 per cent and 10-year contracts were flat at 2.24 per cent.
The ECB’s decision has strengthened bets that the Federal Reserve will press forward with a 25bp rate increase next week, instead of a pause. Investors are pricing in an 81 per cent chance of a quarter percentage point rise.
Asian markets advanced, having also been dragged under this week by fears of a banking crisis. Japan’s Topix rose 1.2 per cent, South Korea’s Kospi gained 0.7 per cent and Australia’s S&P/ASX 200 was up 0.4 per cent. Hong Kong’s Hang Seng and China’s CSI 300 climbed 1.6 per cent and 0.5 per cent respectively.
In currency markets the dollar index, a measure of the greenback against six peer currencies, fell 0.4 per cent. The euro rose 0.4 per cent and sterling was up 0.3 per cent.
Brent crude and its US equivalent West Texas Intermediate rose 0.7 per cent after slumping to their lowest prices in more than a year on Wednesday.