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US stocks and FTSE 100 higher despite shock ECB decision

FTSE  European Central Bank (ECB) President Christine Lagarde attends a news conference following the ECB's monetary policy meeting in Frankfurt, Germany March 16, 2023. REUTERS/Heiko Becker
FTSE traders were not perturbed by the ECB's surprise decision to hike interest rates to 3%. Photo: Heiko Becker/Reuters

The FTSE 100 and European stocks bounced back this Thursday after heavy losses in recent days after the Swiss central bank offered support to embattled lender Credit Suisse (CS) and the European Central Bank (ECB) hiked interest rates.

The ECB raised rates by half a percentage point to 3%, defying calls to hold rates amid the turmoil in the banking sector.

"Inflation is projected to remain too high for too long," the ECB said in its statement. "Therefore, the Governing Council today decided to increase the three key ECB interest rates by 50 basis points, in line with its determination to ensure the timely return of inflation to the 2% medium-term target."

"The Governing Council is monitoring current market tensions closely and stands ready to respond as necessary to preserve price stability and financial stability in the euro area," the statement added. "The euro area banking sector is resilient, with strong capital and liquidity positions."

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The decision comes after troubled Credit Suisse said it will borrow up to 50bn Swiss francs (£44.5bn/$53.7bn) from the country's central bank to shore up its finances. Credit Suisse is one of 30 banks globally deemed too big to fail, forcing it to set aside more cash to weather a crisis.

Problems in the banking sector surfaced in the US last week with the shock collapse of Silicon Valley Bank (SIVB), the country's 16th-largest lender, followed two days later by the failure of New York's Signature Bank (SBNY).

The FTSE 100 (^FTSE) rose 0.94% to close at 7,413 points, while the CAC 40 (^FCHI) in Paris jumped 2.21% to 7,038 points. In Germany, the DAX (^GDAXI) rose 1.68% to 14,985.

The chief executive of Credit Suisse told his staff to focus on facts as he pledged to rapidly move ahead with a plan to streamline operations.

In a memo to staff, Ulrich Koerner said the bank would continue to focus on the transformation of Credit Suisse from a position of strength, citing an improved liquidity coverage ratio and recent capital raisings.

He said: "Effective communication is key to ensure that our clients and external stakeholders understand the strengths of the bank, our strategy and the accelerated progress we are making to create the new Credit Suisse.

"At times like this, it is important to focus on facts and reinforce the strengths of the bank."

Shares in Credit Suisse (0I4P.L) surged by 15% after its plans to borrow cash from the Swiss National Bank emerged.

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The move to shore up Credit Suisse’s finances came a few hours after the central bank and the Swiss financial markets regulator issued a joint statement pledging emergency funding if needed.

They insisted there was no “direct risk” of contagion from turmoil in the US banking system after the sudden collapse last week of the US lender Silicon Valley Bank.

Credit Suisse shares plunged by as much 30% on Wednesday and bets that it would default on its debts dramatically increased.

The bank, Europe’s 17th largest lender, has been struggling to keep customers after a string of scandals in recent years.

US and Asia

On Wall Street, stocks opened mixed on Thursday after the ECB surprised markets with a 0.50% interest rate hike amid continued concerns over the global banking system.

The Dow Jones (^DJI) rose 0.19% to 31,935 points. The S&P 500 (^GSPC) climbed 0.70% to 3,916 points and the tech-heavy NASDAQ (^IXIC) advanced 0.94% to 11,540.

In US economic data, the latest weekly report on initial jobless claims showed a drop in first-time filings for unemployment insurance to 192,000 down from 212,000 the prior week and suggesting continued strength in the US labour market.

Shares in regional bank First Republic (FRC) were down 18%, despite reports of a potential rescue deal.

The Wall Street Journal said that several banks including JPMorgan Chase & Co and Morgan Stanley are in talks with First Republic Bank for a potential deal.

The deal could involve capital infusion to bolster the troubled lender after the collapse of Silicon Valley Bank last week, which triggered fears of a contagion, the WSJ reported. A full takeover is also a possibility, according to the Journal.

In Asia, Tokyo’s Nikkei 225 (^N225) lost 0.80% to close at 27,010, while the Hang Seng (^HSI) in Hong Kong tumbled 1.64% to 19,219. The Shanghai Composite (000001.SS) also lost ground, slipping 1.12% to 3,226 points.

FTSE 100

Back in London, pest control firm Rentokil (RTO.L) was the top riser, up 10.26%, after reporting a jump in annual profits. Grocery firm Ocado (OCDO.L) climbed 1% and Barclays (BARC.L) gained 3.11% after falling 9% on Wednesday.

The pound (GBPUSD=X) was trading modestly higher against the dollar at around $1.2107 as the US banking crisis continues to cause ripples through the markets.

Oil markets

Meanwhile, Brent crude (BZ=F) slipped and was trading at around $73 per barrel, after oil prices plunged 5% on Wednesday to their lowest in more than a year over unease amid a shaking global banking system.

The International Energy Agency (IEA) predicted on Wednesday that the oil market would swing into a supply deficit in the second half of this year amid an economic rebound in China.

On the economic calendar, investors are focusing their attention on the European Central Bank’s (ECB) interest rate decision. Previously expecting a 50bps hike, the market has readjusted it expectations down to 25bps following the turmoil in the banking sector.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said: “With yesterday’s fresh stress on bank stocks, a 50bp hike from the ECB at today’s monetary policy meeting is less than certain.

“Although the hotter-than-expected inflation data from France would’ve granted a 50bp hike, and a few more to come, the ECB may opt for a softer rate hike, or no rate hike at today’s meeting, to let the dust settle before acting further.”

Watch: Credit Suisse secures £44.5bn lifeline amid fears of global financial crisis

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