European shares lift as banking crisis fears abate somewhat
London — European stock indexes rose in early trading on Friday, extending a recovery from the previous day as fears about a banking crisis eased slightly after top US authorities and banks took action to rescue First Republic Bank.
In a crisis beginning with the collapse of US-based Silicon Valley Bank last Friday, risk appetite plunged earlier in the week as investors lost confidence in regional banks in the US and Credit Suisse in Europe. The tumultuous week saw bond yields plunge as investors lowered their expectations for future rate rises.
Global markets stabilised somewhat on Thursday, helped by Credit Suisse saying it would borrow up to Sf50bn ($54bn) from the Swiss National Bank and, later in the day, a group of major banks injecting $30bn in deposits into First Republic Bank, a mid-sized US lender.
Still, analysts say the worry about a possible banking crisis is far from over. Credit Suisse’s CEO said on Friday the bank was working hard to stem customers outflows, although this could take time.
At 9.44am GMT, the MSCI world equity index, which tracks shares in 47 countries, was up 0.4% on the day. Europe’s Stoxx 600 was up 0.7%, but still down 1.9% on the week overall. London’s FTSE 100 was up 0.9%.
The US two-year treasury yield, which is the most sensitive to shifts in interest rate expectations, was up two basis points on the day at 4.1384% — still closer to Wednesday’s six-month low of 3.72% than the peak of 5.084% it hit the previous week, which had been its highest since 2007.
The European Central Bank raised rates by 50 bps on Thursday, sticking to its pledge to fight inflation even as some investors called for a pause in the rate-hiking cycle until the banking turmoil eases.
The central bank’s supervisory board met on Friday to discuss stress and vulnerabilities in the eurozone banking sector.
The benchmark German 10-year yield was steady at around 2.255%, and short-dated eurozone government bond yields rose.
Markets are pricing in a 25 bps increase by the US Federal Reserve when it meets next week, down from previous expectations for a 50 bps increase.
Fed data on Thursday showed that banks sought record amounts of emergency liquidity in recent days, which in turn helped undo months of central bank effort to shrink the size of its balance sheet.
“The fact that the Fed has been very proactive in terms of opening the liquidity tap is potentially useful and that’s stabilised things in the short term at least,” said Guillaume Paillat, multi-asset portfolio manager at Aviva Investors.
“It’s potentially a more stable environment, because it feels like we’ve passed the crisis point and things should normalise a bit.”
Against a basket of currencies, the dollar was down 0.3%. The Australian dollar, seen as a liquid proxy for risk appetite, was up 0.7% on the day at $0.6705.
The pound was up 0.2% and the euro was up 0.3%.
Oil prices also benefited from the resurgence of risk appetite, with Brent crude futures up 1.2% and US West Texas Intermediate crude up 1.5%, recovering after having hit their lowest in more than a year earlier in the week.