ECB Defies Mounting Banking Strains with Half-Point Rate Rise
Topic of the day
The European Central Bank raised interest rates by a half percentage point, pressing ahead with its fight against inflation despite concerns that this could exacerbate strains in the financial system. The ECB said in a statement that it would increase its key rate to 3%, the highest level since 2008, while promising to provide liquidity support to the financial system if needed. The move follows consecutive half-point rate increases in February and December. Many investors had been betting that the ECB might unveil a smaller, quarter-point rate increase on Thursday after last week’s turmoil in the U.S. banking sector spread to Europe. The ECB’s decision provides an early glimpse into how major central banks, including the Federal Reserve, might respond to recent signs of market distress that started with the collapse of two large U.S. banks last week. Both the Fed and Bank of England are set to hold their policy meetings next week. The decision to push ahead with its pre-announced plans suggests that the ECB, at least, still sees pushing down high and sticky inflation in the eurozone as its priority. Central banks’ rapid rate increases over the past year haven’t just weighed on borrowing and economic growth, they have also depressed the value of the bond portfolios commercial banks had been holding, a toxic combination for some lenders.
The Swiss stock market recovered Wednesday's heavy losses on Thursday. The SMI gained 1.9 per cent to 10,719 points. Among the 20 SMI stocks, there were 19 price gainers and one loser. 248.81 (Wednesday: 325.32) million shares were traded. On both days, the development around Credit Suisse (CS) was the decisive factor. Caught up in the crisis of US regional banks in the middle of the week after incriminating statements by a major shareholder, CS immediately managed to break free thanks to the support of the Swiss National Bank (SNB). The SNB lent CS up to CHF 50 billion as a preventive measure to increase liquidity. After the 24 percent plunge the day before, CS recovered by 19.2 percent. In their wake, UBS improved by 3.4 and Julius Baer by 7.6 per cent. Roche was the only share in negative territory. The share price lost 1.5 per cent or 4.05 CHF ex-dividend. Adjusted to account for the dividend of 9.50 CHF, the share closed markedly higher.
European stock markets rebounded on Tuesday, buoyed by comments from the European Central Bank (ECB) on rates and the Swiss National Bank's support for Credit Suisse. The Stoxx Europe 600 index closed up 1.2% at 441.6 points. In Paris, the CAC 40 and the SBF 120 rose by 2% each. The DAX 40 in Frankfurt gained 1.6% and the FTSE 100 in London climbed 0.9%. Oil giant TotalEnergies (+0.1%) reached an agreement with Canadian food retailer Couche-Tard to sell it service stations in Germany and Benelux for about 3.1 billion euros, the two companies announced Thursday. Air France-KLM took 3% after reporting the full repayment of its French state-guaranteed loan (PGE), in line with what the airline said last month. Its French subsidiary Air France confirmed on Thursday that its network and schedule would return to pre-pandemic levels in 2019 this summer. Airport operator ADP Group (+1%) saw its traffic rise 47.6% to nearly 22 million passengers in February compared to the same month in 2022, driven by increased use of its Paris airports and hubs abroad. Siemens Energy (+5.1%), a manufacturer of power generation equipment, unveiled a capital increase on Wednesday to refinance part of its bid for the remaining shares in its wind power subsidiary Siemens Gamesa Renewable Energy.
Stocks climbed Thursday, reversing their morning declines, after 11 of the nation’s biggest banks deposited $30 billion to prop up First Republic Bank in a bid to stem the recent panic in the banking system. Major stock indexes opened lower but changed course after The Wall Street Journal said JPMorgan Chase, Citigroup, Bank of America, Wells Fargo and other banks were in talks to deposit billions of dollars of their own money into First Republic. The government confirmed the deal to rescue the San Francisco lender - one of the banks swept up in the contagion that followed last week’s collapse of Silicon Valley Bank - moments before the stock market closed. The S&P 500 added 68.35 points, or 1.8%, to 3960.28, erasing an earlier decline of 0.7%. The Dow Jones Industrial Average gained 371.98 points, or 1.2%, to 32246.55, and the Nasdaq Composite advanced 283.22 points, or 2.5%, to 11717.28. Of the 11 sectors in the S&P 500, nine finished in the green, with the communication services and information technology segments leading the way. The stock market has been relatively resilient in the midst of the banking crisis. The S&P 500 and Dow are down less than 1.3% in March, and the Nasdaq has posted a modest gain of 2.3%. First Republic shares rose $3.11, or 10%, to $34.27 Thursday after falling as much as 36% earlier in the day. The stock was the biggest gainer in the S&P 500 on the day but is still down 72% in March. The lender drew comparisons to Silicon Valley Bank due to similarities in their size, largely wealthy client bases and the uninsured nature of their deposit bases. Among U.S. regional bank stocks, shares of PNC Financial rose $5.07, or 4.1%, to $130.12; Texas Capital Bancshares added $2.64, or 4.8%, to $57.92; and Comerica advanced $2.78, or 6.2%, to $47.61. Meanwhile, Charles Schwab fell $1.67, or 2.8%, to $57.88. Among other individual stocks, social-media company Snap climbed 75 cents, or 7.3%, to $11.09 after the Biden administration threatened a possible U.S. ban of TikTok, a competitor video-sharing app. Software firm Adobe rose $19.68, to 5.9%, to $353.29 after it reported better-than-expected quarterly revenue and raised guidance for some of its full-year targets.
In Asia, major indexes broadly closed with gains on Friday. On the Tokyo stock exchange, the Nikkei index rose by 1.2 per cent, supported by banking stocks. On the Chinese stock exchanges, the Shanghai Composite advanced by 1.4 per cent. The Hang Seng Index in Hong Kong gained 1.5 per cent. The share price of the technology company Baidu jumped by around 15 per cent after the previous day's losses. In South Korea, the Kospi increased by 0.8 per cent. The performance was led by semiconductor stocks: the share of chip manufacturer SK Hynix climbed 6.5 per cent and Hanmi Semiconductor added 8.5 per cent.
The policy-sensitive 2-year U.S. Treasury yield spiked back above 4% on Thursday, along with the rate on 6-month T- bills, after several banks agreed to a funding deal to rescue First Republic Bank. The 2-year Treasury note rebounded nearly 19 basis points to 4.161% as expectations regarding a quarter-point rate hike by the Fed returned to the fore. The 10-year Treasury note climbed 9 basis points to 3.581%.
DZ cuts UBS target to CHF 18.10 (20) - Hold
UBS lowers Komax target to CHF 190 (195) - Sell
Baader reduces HIAG target to CHF 92 (96) - Add
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