European stocks rallied in early trade on Friday, as a rescue package to shore up struggling US lender First Republic Bank restored a measure of confidence to bank shares.
The region-wide Stoxx 600 was up 1 per cent, while Germany’s Dax and France’s Cac 40 rose 0.9 per cent. The UK’s FTSE 100 climbed 1.2 per cent.
The banking sector, which experienced major sell-offs during the week, recovered somewhat, with the Euro Stoxx Banks index up 2.3 per cent. Credit Suisse was up 3.7 per cent, having been pledged liquidity support by the Swiss National Bank on Wednesday.
US futures advanced modestly, amid news that struggling bank First Republic will be shored up by a consortium of banks that will inject $30bn into the beleaguered lender.
JPMorgan Chase, Bank of America, Citigroup and Wells Fargo will each deposit $5bn. Goldman Sachs and Morgan Stanley will each put in $2.5bn, while BNY Mellon, PNC Bank, State Street, Trust and US Bank will deposit $1bn each.
“US intervention at the weekend is helping to limit contagion fears. What the market is telling us is that this is not systemic, but it is fundamentally hard to assess because no long-term solution for the time being,” said Nadège Dufossé, global head of multi-asset at Candriam.
Futures tracking the blue-chip S&P 500 rose 0.3 per cent, while contracts for the tech-heavy Nasdaq were also up 0.3 per cent. The S&P 500 on Thursday had its biggest one-day increase since January.
Shares in First Republic closed up 10 per cent on Thursday, then fell 7.2 per cent in premarket trading.
The European Central Bank on Thursday announced its decision to raise interest rates by 50 basis points, despite the financial turmoil which had led investors to speculate whether it might pause its agenda. However, it ditched a previous commitment to keep “raising interest rates significantly at a steady pace”.
The ECB’s decision has strengthened bets that the Federal Reserve will press forward with a 25bp rate increase, instead of a pause. Investors are pricing in an 81 per cent chance of a quarter percentage point rise.
Sovereign debt markets were muted, with yields on two-year Treasury bills, which are most sensitive to interest rate expectations, rising 0.03 percentage points to 4.16 per cent and 10-year note yields falling 0.03 percentage points to 3.55 per cent.
Two-year Bund yields rose 0.04 percentage points to 2.6 per cent, and 10-year contracts were flat at 2.24 per cent.
Asian markets advanced, having also been dragged under this week by fears of a banking crisis. Japan’s Topix rose 1.2 per cent, South Korea’s Kospi gained 0.7 per cent and Australia’s S&P/ASX 200 was up 0.4 per cent. Hong Kong’s Hang Seng and China’s CSI 300 climbed 1.6 per cent and 0.5 per cent respectively.
In currency markets, the dollar index, a measure of the greenback against six peer currencies, fell 0.4 per cent. The euro rose 0.4 per cent and sterling was up 0.3 per cent.
Brent crude and its US equivalent West Texas Intermediate rose 0.7 per cent after slumping to their lowest prices in more than a year on Wednesday.