Shares rise as bank support gives investors courage

  • MSCI All-World index rises 0.3%, dollar eases
  • UBS rehires Ermotti to lead merged entity
  • Alibaba rises 13%, lifts other Chinese tech stocks
  • Oil rises, gold falls

LONDON, March 29 (Reuters) – Global stocks rose on Wednesday as investors took heart from a greater degree of stability in the banking sector, but the sense of optimism was not robust enough to beat serious safe-haven assets such as bonds or gold.

The sale of assets in Silicon Valley Bank (SVB), the regional lender that collapsed earlier this month, has helped bolster investors’ appetite for risk. Certain measures of market stress have eased, giving stocks, cryptocurrencies and commodities a boost over the past couple of weeks.

The MSCI All-World index ( .MIWD00000PUS ) rose 0.3% while European shares ( .STOXX ) rose 0.92%, thanks in part to a rise in banking shares after UBS ( UBSG.S ) said it would hire Sergio Ermotti again to lead the company after the takeover by Credit Suisse ( CSGN.S ).

The economic backdrop is healthier than it was six months ago, and despite some parallels with the 2008 financial crisis, the current problems in the banking sector seem more contained for now. But given the uncertainty surrounding the outlook for global interest rates, the mood is nervous.

“Sentiment is scary at the moment and the market will be subject to volatility,” said Kallum Pickering, senior economist at Berenberg.

In the first congressional hearing on the collapse of two US regional lenders, lawmakers pressed the Federal Reserve’s top banking regulator on whether the central bank should have been more aggressive in its oversight of SVB.

Michael Barr, the Fed’s deputy chairman for supervision, criticized SVB for going months without a chief risk officer and how it modeled interest rate risk.

“From a macroeconomic perspective, we should be relaxed about the fact that big banks, on both sides of the Atlantic, are well capitalized, have a lot of deposits, and regulators and central banks seem absolutely committed to preventing any significant systemic event,” Pickering said.

“What we are trying to include in the macroeconomic picture as a result of these bank strains is a degree of liquidity hoarding and some cautious lending behavior by the banks until they can fully understand the impact of monetary policy tightening,” he added.

The US Regional Bank Index KBW (.BKX) has fallen 3.3% in the past week, but remains above its six-week low.

“Investors have not lost their anxiety completely … and hints of a major regulatory overhaul are likely to weigh on the (banking) sector until details emerge,” said Robert Carnell, regional head of research, Asia Pacific at ING.

A survey on Tuesday showed that US consumer confidence rose unexpectedly in March, despite recent financial market turmoil, but Americans continued to expect inflation to remain high over the next year.

A separate survey on Wednesday showed that German consumer sentiment will improve in April, thanks to a drop in energy prices, although a full recovery is unlikely anytime soon.

Concerns about inflation have prompted investors to reassess expectations for monetary policy from a number of major central banks, including the European Central Bank and the Federal Reserve.

Markets are now pricing in a 60% chance that the Fed will leave interest rates unchanged at its next meeting.

The dollar index, which measures the performance of the U.S. currency against six others, was roughly flat on the day at 102.46.

E-mini futures for the S&P 500 rose 0.82%, suggesting a strong start to trading later.

In currency markets, the euro rose 0.15% to $1.0862, while the pound gained 0.1% to $1.2355.

The Japanese yen, a safe haven for many, fell 0.8% against the dollar to 131.95 per dollar, after rising 0.5% the previous day.

US Treasury yields edged lower, with the benchmark 10-year note down 1 basis point at 3.554%, and the two-year bond yield also down 1bp at 4.05%.

Two-year yields have risen by as much as 50 bps from Friday’s six-month low, reflecting greater investor confidence.

Gold, meanwhile, fell 0.5% to $1,964 an ounce, but remained within sight of last week’s highs around $2,000.

In commodities, oil rose for the third day in a row on improving market sentiment, and as a halt to some exports from Iraqi Kurdistan raised concerns about tightening supply. Brent crude futures rose 0.8% to $79.28, while U.S. crude futures rose 1% to $73.94 a barrel.

Editing by Shri Navaratnam, Jacqueline Wong, William Maclean

Our standards: Thomson Reuters Trust Principles.

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