European equities’ advance slowed by late morning on Tuesday as investors remained cautious that the worst of the recent banking turmoil was over.
The Stoxx Europe 600 Banks index, which includes the region’s biggest lenders, was down 0.1 per cent. Commerzbank was among the biggest gainers, up 0.6 per cent. Deutsche Bank, however, was down 1.7 per cent.
The mood was reflected in broader share indices, with the regionwide benchmark Stoxx 600 down 0.1 per cent and Germany’s Dax flat. London’s FTSE was up 0.1 per cent.
“At the moment no news is good news. People are waiting for the dust to settle and to see if there is another banking stress,” said Nadège Dufossé, global head of multi-asset at Candriam. “I expect better news flow around inflation in coming months but for now we don’t know the impact on growth. We’re not out of the woods yet and will continue to see volatility.”
US bank stocks finished higher overnight in New York as investors welcomed news that US regulators could enact more policies to support fragile confidence in banks. The KBW Nasdaq Bank index rose 2.5 per cent, with Citigroup up 3.9 per cent. The advances in US bank shares came as regulators confirmed First Citizens Bank would purchase part of the collapsed Silicon Valley Bank.
Futures for the blue-chip S&P 500 and the tech-heavy Nasdaq fell 0.1 per cent.
Analysts stressed that bank distress on both sides of the Atlantic had different roots.
“Credit Suisse and Deutsche Bank have been on the radar in terms of distress for many years,” said Francesco Pesole, forex strategist at ING. “Whereas in the US it is regional banks and the problems are more regulatory and structural.”
Later on Tuesday, the US Congress will hear evidence on the collapse of SVB, which may provide market watchers with additional context on the lender’s failure.
In testimony released on Monday ahead of the hearing, Michael Barr, Fed board vice-chair for supervision, said SVB was a “textbook case of mismanagement”, but that regulators “are prepared to use all of our tools for any size institution, as needed, to keep the system safe and sound”.
Analysts at SEB Research said the main question for regulators was to define “in which situations and for which institutions such exemptions could become relevant again and in which cases the authorities would allow depositors’ money to be lost”.
In Asia, the Hang Seng index closed up 1.1 per cent after Monday data showed that Chinese industrial profits declined 22.9 per cent year on year.
Government debt weakened, with yields on two-year US Treasuries rising 0.07 percentage points to more than 4 per cent, while 10-year notes rose 0.03 per cent to 3.56 per cent.
In currency markets, the dollar index — which measures the greenback against a basket of six peer currencies fell 0.2 per cent. The euro and sterling rose 0.3 and 0.2 per cent against the dollar respectively.
Brent crude rose 0.7 per cent to $78.66 a barrel, while WTI, the US equivalent, was also up 0.7 per cent at $73.30 a barrel.
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