European shares rise as market sentiment recovers after banking turmoil

  • European shares rise in the first European quotes
  • The ECB offered a 50bp hike, lowered forward guidance
  • First Republic Bank gets $30 billion injection, concerns persist
  • Fed data showed banks sought record emergency liquidity

LONDON, March 17 (Reuters) – European stock indexes rose in early trade on Friday, extending their recovery from the previous day, as fears of a banking crisis eased slightly after major northern authorities and banks Americans took steps to rescue First Republic Bank.

In a crisis that began with the collapse of US-based Silicon Valley Bank last Friday, risk appetite weakened earlier in the week as investors lost confidence in regional banks in USA and Credit Suisse in Europe. The turbulent week saw bond yields fall as investors cut their expectations of future rate hikes.

Global markets steadied somewhat on Thursday, helped by Credit Suisse saying it would borrow up to 50 billion Swiss francs ($54 billion) from the Swiss National Bank and later a group of major banks injecting 30 billion of dollars in deposits at First Republic. Bank, a mid-sized US lender.

Still, analysts say worries about a potential banking crisis are far from over.

Credit Suisse’s chief executive said on Friday that the bank was working hard to stem client outflows, although that could take time.

At 0944 GMT, the MSCI world equity index, which tracks stocks in 47 countries, was up 0.4% on the day.

Europe’s STOXX 600 rose 0.7%, but was still down 1.9% for the week (.STOXX).

London’s FTSE 100 rose 0.9% (.FTSE).

The 2-year U.S. Treasury yield, which is most sensitive to changes in interest rate expectations, rose 2 basis points on the day to 4.1384%, still closer to Wednesday’s six-month low of 3.72% than the high of 5.084% hit the previous week, which had been its highest since 2007.

The European Central Bank raised rates by 50bps on Thursday, keeping its promise to fight inflation, although some investors called for a pause in the rate hike cycle until banking turmoil eases.

The central bank’s supervisory board met on Friday to discuss stress and vulnerabilities in the euro zone’s banking sector.

Germany’s benchmark 10-year yield was steady at around 2.255% and short-term eurozone government bond yields rose.

Markets are pricing in a 25bp hike by the US Federal Reserve when it meets next week, down from earlier expectations of a 50bp hike.

Fed data on Thursday showed banks sought record amounts of emergency liquidity in recent days, which in turn helped undo months of efforts by the central bank to shrink the size of its balance sheet.

“The fact that the Fed has been very proactive in opening the liquidity tap is potentially helpful and that stabilizes things at least in the short term,” said Guillaume Paillat, multi-asset portfolio manager at Aviva Investors .

“It’s potentially a more stable environment, because it looks like we’re past the tipping point and things should normalize a bit.”

Against a basket of currencies, the US dollar was down 0.3%. The Australian dollar, seen as a liquid indicator of risk appetite, rose 0.7% on the day to $0.6705.

The British pound rose 0.2% and the euro 0.3%.

Oil prices also benefited from a resurgence in risk appetite, with Brent crude futures up 1.2% and US West Texas Intermediate crude up 1.5%, recovering after hit its lowest in more than a year earlier in the week.

Reporting by Elizabeth Howcroft; edited by Robert Birsel

Our standards: the Thomson Reuters Trust Principles.

Elizabeth Howcroft

Thomson Reuters

Reports on the intersection of finance and technology, including cryptocurrencies, NFTs, virtual worlds, and money powering “Web3”.

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