Markets in Europe and Asia rebounded Friday after First Republic Bank was rescued by a group of major US lenders, easing worries about the current banking turmoil.
“Some optimism has returned to markets over the last 24 hours, with bank stocks stabilizing on both sides of the Atlantic,” Deutsche Bank analysts said in a note Friday.
First Republic Bank (FRC) is set to receive a $30 billion lifeline from a group of America’s largest banks, including JPMorgan Chase (JPM), Bank of America (BAC), Wells Fargo (CBEAX), Citigroup (C) and Truist (TFC).
The news calmed investors, who were on tenterhooks over a potential banking crisis following the collapse of two US banks and the maelstrom at Credit Suisse (CSGKF) over the past week. On Thursday, US stocks closed higher, with tech shares staging a rally.
European shares posted gains Thursday as investors were reassured by news that Credit Suisse would tap a lifeline offered by the Swiss National Bank, borrowing up to 50 billion Swiss Francs ($53.7 billion).
The rally in Europe carried over to Friday, although gains were modest. The benchmark Stoxx Europe 600 index rose 0.3% in early trade. Germany’s DAX (DAX) and France’s CAC 40 (CAC40) ticked up 0.4% and 0.07% respectively.
Europe’s Stoxx Europe 600 Banks index, which tracks 42 big EU and UK banks, also opened higher, before trading flat by mid-morning. The index had fallen 13% in the week to Thursday’s close.
London’s bank-heavy FTSE 100 (UKX) inched up 0.6%.
But shares in Credit Suisse (AMJL) fell as much as 5% in early trade, eating into gains made Thursday, in a sign that investor confidence in the bank’s future has not been completely restored.
In Asia, Hong Kong’s Hang Seng (HSI) closed 1.64% higher, China’s Shanghai Composite gained 0.73%, Japan’s Nikkei (N225) increased 1.2%, and South Korea’s Kospi added 0.8% by market close. The rises followed bigger declines on Thursday.
Chinese tech, property and financial shares rallied across the board. Baidu closed 14% higher in Hong Kong, after some securities firms gave positive preliminary reviews of the company’s ChatGPT-like app.
Real estate developer Country Garden ended the day 7.7% higher, after China’s property market showed early signs of recovery. Official data indicated Thursday that new home prices for February rose for the first time since August 2021.
“Following the recent global financial instabilities, First Republic Bank was expected to be the next domino to fall,” said Yeap Jun Rong, a market analyst at IG. “But an industry-wide rescue to shore up the bank’s finances provided some much-needed reassurances to mitigate further banking jitters.”
Investors around the world have been holding their collective breaths for a week after the rapid collapse of Silicon Valley Bank and Signature Bank stoked fears about the health of the global banking sector.
Worries deepened Wednesday after shares of Credit Suisse plummeted in Europe. Regulators on both sides of the Atlantic have taken emergency measures to shore up confidence, including protecting deposits at SVB and Signature Bank.
On Thursday, European shares mostly shrugged off the European Central Bank’s decision to stick with its plan to hike interest rates by half a percentage point.
“This [rate hike] is good news against the background of persistently high inflation rates,” Ulrike Kastens, economist for Europe at DWS, wrote in a research note Friday. “At the same time, it reaffirms its intention to intervene with liquidity measures if financial market stability is threatened.”
Investors are now awaiting the Federal Reserve’s rate decision next week. They widely expect the US central bank to raise rates by 25 basis points.