Financial markets regained confidence on Friday after a trying week for the banking sector, immediately relieved by the rescue plan provided to several American banks and Credit Suisse, considered a weak link in Europe.
Eleven major US banks pledged Thursday to rescue First Republic, the 14e bank in the United States by the size of its assets, allaying market fears of another bank failure after those of Silicon Valley Bank, Signature Bank and Silvergate last week.
An effort hailed by the US Federal Reserve (Fed), the Treasury and two financial regulators, and which had something to reassure investors terrified by a possible risk of contagion to other banking establishments.
In Europe, stock indices rose 0.89% in Frankfurt, 0.72% in Paris, 1.10% in London and 1.50% in Milan around 9 a.m. GMT (5 a.m. EDT) supported by a message of confidence in the banking sector from the European Central Bank (ECB), which said it was ready on Thursday to intervene if necessary to “preserve financial stability” in the euro zone.
In Asia, the stock markets recovered from the emotions of the previous day, recovering by 1.2% in Tokyo and 1.1% in Hong Kong.
“Concerns about the banking sector are fading after the big banks lent their support to First Republic and the SNB extended a lifeline to Credit Suisse,” commented Edward Moya, analyst at Oanda.
Signs of appeasement were also confirmed on the government bond market, which was extremely volatile this week but which has been stabilizing since the announcement of the ECB’s strategy.
The Governor of the Banque de France François Villeroy de Galhau wanted to be reassuring on Friday morning.
“French and European banks are extremely solid”, he declared on BFM Business, and “are not in the situation of certain American banks for a very simple reason which is that they are not subject to the same rules “.
Since March 10, these bank failures across the Atlantic have revived the specter of the 2008 financial crisis which had destabilized the global economy.
Rate hike
In a sign of financial strain, US banks have since borrowed a total of $164.8 billion from two US Federal Reserve guarantee facilities in recent days, according to financial news agency Bloomberg.
As a vector of risk in Europe, Credit Suisse was also fighting for its future.
After having suffered the worst session in its history on the stock market on Wednesday, bearing the brunt of worries about the banking system, the group in difficulty received support from the Swiss central bank to strengthen its liquidity.
But Credit Suisse stock, which had rallied 19.15%, without offsetting Wednesday’s nearly 25% drop, was back in the red (-3.54% around 9:30 a.m. GMT or 5:30 a.m. EDT) after the hypothesis of a takeover of the banking giant has resurfaced according to analysts.
All of this banking turmoil has fueled speculation that central banks may be easing their stance on inflation to avoid a severe recession.
On Thursday, however, the European Central Bank reaffirmed its determination to fight inflation that is still high by raising its key interest rates by an additional 0.5 percentage point, refraining, however, from deciding on further monetary tightening and relying on future data to determine the future path of rates.
“The ECB leaves all its options open before the decisions of the Fed and the Central Bank of England next week,” comments Axel Botte, international strategist at Ostrum AM.
Investors will therefore closely monitor the next economic indicators in order to get an idea of the timing of the Fed’s future monetary tightening.
The OECD is due to publish its global growth forecasts for the next two years during the day.