Global markets cheer US moves to shore up banks

London — Global stocks rose and the dollar eased on Tuesday after a deal backed by the US regulator for First Citizens BancShares to buy Silicon Valley Bank soothed some of the recent concern about the health of the banking sector.

US banking regulators said on Monday they planned to tell Congress that the overall financial system remains on a solid footing after recent bank failures, but will comprehensively review their policies in a bid to prevent future collapses.

With a little more stability returning to the banking sector, investors felt confident enough to ditch some of their recent safe-haven purchases, meaning the price of bonds and gold edged lower, as did the dollar.

The MSCI All-World index, which is down 0.1% so far in March, was up 0.2%. European shares were flat on the day.

US stock futures, the S&P 500 e-minis, were flat, suggesting the benchmark index might not build on Monday’s gains at the opening bell later.

Nevertheless, the concern hasn’t evaporated. Federal Reserve governor Philip Jefferson said on Monday that stress among small banks could hit small businesses hardest.

Moreover, the extreme market volatility has forced many investors to close positions and prompted others to capitalise on some of those big price moves by betting those swings will die down, known as mean reversion trading.

That means a lot of the confidence that appears to have returned to the markets might not be built on much other than technical factors, according to Marc Ostwald, chief global economist for ADM Investor Services.

“It may not be until after month-end, possibly even after the Easter break, before it comes clear how much of the rebound in battered bank stocks and risk assets has been to do with those quarter-end flows, short-covering and mean reversion trades, rather than a genuine sense that the worst has past for the banking sector,” Ostwald said.

The stress in, and about, the banking sector has clouded the picture for monetary policy. Even with inflation gradually subsiding, it’s harder for investors to see how central banks might balance the need to anchor price stability with the need to keep markets running smoothly.

Tighter credit conditions to help temper inflation will provide a headwind to the economy, but won’t derail it, analysts at Goldman Sachs said.

“We do not expect this to be a hurricane that pushes the economy into recession and forces aggressive Fed easing,” they said in a note on Tuesday.

US Treasury yields edged higher, reflecting a degree of relief that the problems in the banking sector can be contained.

Benchmark 10-year yields rose 2 basis points to 3.552%, while two-year yields rose 6 bps to 4.019%, still some way off the almost 16-year high of 5.084% on March 8.

Gold eased as investors booked profits on last week’s rally above $2,000/oz ounce. Spot gold was last down 0.2% at $1,953/oz.

Reuters