US stocks rose and nerves around banking stocks in Europe eased on Thursday as the world’s central banks tried to calm skittish investors with promises to maintain financial stability.
In New York the S&P 500 was up 1.5 per cent while the Nasdaq Composite was up 2 per cent in morning trade. The KBW Nasdaq Bank index, which has sold off heavily this week following the collapse of Silicon Valley Bank, rose 2 per cent.
In Europe the benchmark Stoxx 600 rose 1.4 per cent and FTSE 100 added 0.9 per cent as investors were reassured by comments from the European Central Bank that it was prepared to provide liquidity support to the euro area financial system “if needed”.
That came a day after the Swiss National Bank said it would step in to offer liquidity support to lender Credit Suisse, whose shares rose by a fifth in Zurich. The Euro Stoxx 600 banks index, which contains the region’s biggest lenders, reversed early losses to trade up 1.2 per cent. Société Générale was down 0.2 per cent and Deutsche Bank lost 1.3 per cent.
Stocks and government debt have been volatile this week after the failure of US-based Silicon Valley Bank, forcing the Federal Reserve to step in to secure customers’ deposits.
“If you step back it was only a matter of time before [central bank] tightening would create stress in the system. Unfortunately, that stress has arrived in the banking system, arguably the worst place because the ramifications are potentially unlimited,” said John Porter of Newton Investment Management. “I wouldn’t rule it [systemic issues] out, but the moves of the Swiss National Bank and Fed over the weekend have reduced the odds for now.”
Equity indices in Europe were modestly higher after the European Central Bank announced its decision to raise interest rates by 50 basis points, at the top end of market expectations. The central bank cautioned that “inflation is projected to remain too high for too long”.
By lifting rates by half a percentage point the ECB has signalled that, for now, concerns about price stability trump those about financial stability, said Carsten Brzeski, head of macro research at ING Bank.
The ECB is “convinced” European banks are healthy and stable, he added, and said raising rates showed it has “other things — inflation — to worry about now”.
The upheaval in the banking industry had prompted speculation that the world’s biggest central banks would be forced to rethink their aggressive interest rate-rising agendas.
Investors say the ECB’s decision may prompt the Fed to also move forward with interest rate increases next week.
“Had the ECB paused or moved to 25 basis points that would have put pressure on the Fed,” said Jeffrey Schulze, investment strategist at ClearBridge Investments. “As things are they should have the confidence to move forwards.”
The yield on two-year US Treasury notes, which is closely linked to interest rate expectations, rose 0.2 percentage points to 4.1 per cent. The yield on the 10-year note rose 0.06 percentage points to 3.5 per cent. Yields move inversely to prices.
Yields on 10-year German Bunds, which on Wednesday had their biggest single-day drop since 1990, rose 0.02 percentages points to 2.26 per cent, while the yield on the two-year notes rose 0.03 percentage points at 2.58 per cent.
Brent crude and WTI, the US equivalent, rose 2.2 per cent to $75.33 and $69.11 respectively after slumping to their lowest level since December 2021 in the previous session.
Asian equities fell, although analysts at Deutsche Bank said the continent was “avoiding the larger scale declines witnessed in Europe and the US”, after the banking crisis.
Japan’s Topix shed 1.2 per cent, South Korea’s Kospi lost 0.1 per cent and Australia’s S&P/ASX 200 fell 1.5 per cent. Hong Kong’s Hang Seng and China’s CSI 300 dropped 1.7 per cent and 1.2 per cent, respectively.