LDN - Business

Europe shares edge higher as bank fears ease

[March 27, 2023] By Nell Mackenzie and Wayne Cole

LONDON, SYDNEY (Reuters) -Global shares inched higher after First Citizens BancShares soothed fragile markets on Monday by saying that it would take the deposits and loans of failed Silicon Valley Bank.

The deal offered markets some respite from several weeks of fresh banking collapses, rescues or emergency help from authorities.

The pan-European STOXX 600 index was up 1.0% at 0942 GMT. The STOXX banks index jumped 2.3% in early trading and was last up 0.8%.

Deutsche Bank shares rose about 4% after leading declines in the sector on Friday, when the cost of insuring the German bank's debt against the risk of default jumped.

S&P 500 futures traded up 0.3% and Nasdaq futures edged up 0.1%.

China saw profits for industrial firms shrink 22.9% in the first two months of this year, as its factories struggled to come out of the COVID-related disruptions. Chinese blue chips slipped 0.4%, further weighed by geopolitical tensions.

Overall, the mood remained jittery due to concerns about banking stress and the impact on global growth.

"Banks have been under an immense amount of pressure. SVB and Credit Suisse put banks under a microscope on the impact that higher rates would have on certain credits," said Victor Balfour, investment strategist at Rothschild & Co. in London.

"But we don't think these specific names are symtomatic of the wider banking system," he said.

While inflation has not yet subsided, focus should shift in the coming months to corporate earnings expectations, which fell during the second half of last year, Balfour said.

PRICED FOR FED CUTS

Minneapolis Fed President Neel Kashkari said on Sunday officials were watching "very, very closely" to see if the banking stress led to a credit crunch that threatened to tip the economy into recession.

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A man is reflected on an electronic board displaying various companies' stock prices outside a brokerage in Tokyo, Japan, February 22, 2022. REUTERS/Kim Kyung-Hoon/File Photo

That, in turn, meant the Fed was closer to a peak in rates, he added. Markets are well ahead of the central bank in pricing around an 80% chance rates have already peaked, while a first rate cut is odds-on for as early as July.

Fed Governor Philip Jefferson speaks later on Monday, while Fed Vice Chair for Supervision Michael Barr testifies on "Bank Oversight" before the Senate on Tuesday.

Yields on two-year Treasuries have fallen 92 basis points so far this month to stand at 3.87%.

That dive has sometimes been a drag on the dollar, at least against the safe-haven Japanese yen, where it stands at 131.10 yen, having touched a seven-week low of 129.65 last week.

The euro suffered its own reversal on Friday over the worries about Deutsche, and it was last at $1.0770 and well off last week's $1.0930 top.

The drop in yields has combined with the run from risk to burnish gold, which was trading at $1,970 an ounce after reaching a high above $2,009 last week. [GOL/]

Oil prices were little changed, and are nursing losses of almost 10% for the month as worries about global growth undermine commodities in general. [O/R]

Brent and U.S. crude rose about 0.5% to $75.35 a barrel and $69.90 per barrel, respectively.

(Reporting by Nell Mackenzie and Wayne Cole; Editing by Sam Holmes, Jacqueline Wong, Peter Graff)

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