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Wednesday, Mar 29, 2023

European stocks slip as banking turmoil keeps sentiment fragile

European stocks slip as banking turmoil keeps sentiment fragile

European stock indexes edged lower on Friday after an early recovery ran out of steam, while Wall Street futures were mixed as investor sentiment remained fragile after a week of turbulence.
In a crisis that began 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 drop as investors lowered their expectations for future rate rises.

Risk appetite showed signs of recovery 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 in the day, a group of major banks injecting $30 billion 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 chief executive said on Friday the bank was working hard to stem customers outflows, although this could take time. Credit Suisse shares resumed their decline.

European Central Bank supervisors do not see contagion for euro zone banks from the market turmoil, a source familiar with the content of an ad hoc supervisory board meeting earlier this week told Reuters.

At 1207 GMT, the MSCI world equity index, which tracks shares in 47 countries, was up 0.3 percent on the day.

Europe’s STOXX 600 was down 0.1 percent and set to lose 1.9 percent on the week overall.

London’s FTSE 100 was little changed. Wall Street futures were mixed.

The US 2-year Treasury yield, which is the most sensitive to shifts in interest rate expectations, was up 1 basis point on the day at 4.1426 percent — still closer to Wednesday’s six-month low of 3.72 percent than the peak of 5.084 percent 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 benchmark German 10-year yield was down 5 bps at 2.193 percent .

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 stabilized 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 normalize a bit.”

Against a basket of currencies, the US dollar was down 0.2 percent. The Australian dollar, seen as a liquid proxy for risk appetite, was up 0.6 percent on the day at $0.6695.

The British pound and the euro were both up 0.2 percent .

Oil prices benefited from the initial resurgence of risk appetite, before paring gains, with Brent crude futures up 0.4 percent and US West Texas Intermediate crude up 0.7 percent after having hit their lowest in more than a year earlier in the week.
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