European equities rose at the open on Monday, led by financial stocks such as Deutsche Bank, as investors grew more reassured over the health of the banking industry.
The region-wide Stoxx 600 rose 0.9 per cent, Germany’s Dax and France’s Cac 40 each added 0.8 per cent and the UK’s FTSE 100 gained 0.6 per cent.
After sustaining heavy losses in the previous session, banking stocks saw gains, with the Stoxx 600 banks index, which comprises the region’s biggest lenders, rising 1.2 per cent.
Deutsche Bank, which lost 8.5 per cent on Friday, added 4.4 per cent. The bank’s slide came after its five-year credit default swaps climbed to 200 basis points last Friday as investors bet on which bank might be next to encounter difficulties after the failure of Credit Suisse.
On Sunday, US regulators confirmed First Citizens Bank would buy much of the collapsed Silicon Valley Bank, although it would lead to $20 billion (€18.5 billion) of losses for a deposit insurance fund paid for by US banks.
“The recovery could reflect investors having a few days to reassess and decide things aren’t as bad as they seemed. There were all sorts of stories at the weekend saying Deutsche Bank is nowhere near as risky [as Credit Suisse], but it’s too early to tell and we have to see how things shake out,” said Jack Allen-Reynolds, deputy chief euro zone economist at Capital Economics.
Futures contracts tracking the blue-chip S&P 500 rose 0.2 per cent, while those following the tech-heavy Nasdaq were flat.
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Despite concerns that their rate-raising agendas might dent financial stability, central banks on both sides of the Atlantic centred the fight against inflation by increasing interest rates last week.
Economists are betting that the US Federal Reserve will pause its rate-raising cycle at its next meeting in May before cutting in September, while expecting a 0.25 percentage point increase from the European Central Bank and no cuts in 2023.
On Friday, data from the personal consumption expenditures price index, the Fed’s preferred inflation gauge will be released, along with consumer price index data for the euro zone.
Later on Monday, Fed Board of Governors member Philip Jefferson and the ECB’s Isabel Schnabel will give their first public remarks since the start of the banking crisis.
Stocks fell in Asia after Chinese industrial profits slumped by 22.9 per cent, much weaker than expected, after factory activity struggled to recover from the country’s prolonged shutdown due to Covid-19. The CSI 300 fell 0.4 per cent and the Hang Seng index lost 1.2 per cent.
In government debt markets, yields on two-year US Treasuries – which are most sensitive to interest rates – rose 0.1 percentage points to 3.89 per cent and yields on 10-year notes rose 0.03 percentage points to 3.41 per cent.
Yields on two-year German Bunds rose 0.1 percentage points to 2.5 per cent, while 10-year contracts rose 0.06 percentage points to 2.18 per cent.
Brent crude rose 1.2 per cent to $75.93 and West Texas Intermediate, the US equivalent, increased by 1.3 per cent to $70.18. - Copyright The Financial Times Limited 2023