- Stocks rise as Switzerland offers Credit Suisse a lifeline
- Bond yields are rising, the ECB expects a rate hike of up to 50 basis points
- Oil rises from 15-month low
- Graphic: World exchange rates
LONDON, March 16 (Portal) – European markets rallied on Thursday as a 50 billion Swiss franc ($53.94 billion) lifeline for struggling lender Credit Suisse left traders ahead of a later European interest rate decision central bank requested.
Credit Suisse shares are up more than 20% and major European indices and the Swiss franc are all up about 1% in early trade after action was taken by the Swiss National Bank and financial regulator FINMA late on Wednesday.
The SNB confirmed on Thursday that it would provide “liquidity” to the lender. Credit Suisse is taking “decisive action” and will borrow up to 50 billion Swiss francs from one of the world’s leading central banks.
Europe’s bank stocks (.SX7P) rallied 2.3% after suffering their steepest daily decline in more than a year in the previous session, while bond traders later sold safe haven government bonds again ahead of the ECB’s interest rate decision.
last update
Watch 2 more stories
ECB President Christine Lagarde has widely signaled a 50 basis point hike, but last week’s turmoil, which also saw two US banks collapse, means markets now view this as roughly 50/50 between 50 basis points and 25 basis points.
“I am concerned that the ECB will not pay enough attention to this risk (problems in the banking sector) and that could be a mistake,” said Stefan Gerlach, chief economist at EFG Bank in Zurich and former deputy governor of the Central Bank of Ireland.
Last week shows what happens when major central banks like the US Federal Reserve and the ECB hike interest rates by hundreds of basis points in a short space of time, he added.
“Whenever you do something that big, you know there’s risk waiting somewhere in the financial system,” Gerlach said. “It’s like stretching a rubber band. If you keep stretching it, will it break?”
The German two-year bond yield, which is highly sensitive to interest rate expectations, rose 16 basis points (bps) to 2.55% last week, after falling 54 bps on Wednesday amid a market-wide fight for safety.
Overnight, Asian stocks were down about 1%, but it was mostly catching up and didn’t have the frenzy seen in Europe the previous day.
Wall Street futures there, too, later pointed to a steady start as demand for both the dollar and gold, traditional investors’ go-to spots during the market turmoil, had softened.
Portal Graphics Portal Graphics
INFECTION
However, many investors said it was far too early to sound the all-clear.
Analysts at JPMorgan said the SNB’s loan would not be enough to allay investor concerns and that the “status quo is no longer an option”, leaving a takeover by Credit Suisse the most likely outcome.
“I think we’re getting back into hard hat territory,” said Damian Rooney, a dealer at Perth stockbroker Argonaut.
“The word contagion goes around … we get scared across the board here,” he said. “The problem is unwinding — you don’t know what you don’t know.”
The MSCI index of Asia Pacific equities outside Japan (.MIAPJ0000PUS) fell 1% to its lowest level this year. Japan’s banking stocks, also viewed as vulnerable to rate hikes (.IBNKS.T), recouped some even larger early losses but still ended down 3.25%.
Two-year US Treasuries are poised for their best week since 1987 and yields, which fall as prices rise, have fallen more than 66 basis points since Friday.
The euro was last up 0.3% at $1.0612 and the Swiss franc rose 0.9% to 0.9267 against the dollar. The preference for safety still supported the yen, which rose 0.4% to 132.89 per dollar in London trade.
Oil prices also regained some ground after falling to 15-month lows in the previous session. Brent crude futures were up 60 cents, or 0.8%, to $74.29 a barrel, while West Texas Intermediate (WTI) crude futures rose to $68.08 a barrel.
($1 = 0.9270 Swiss Francs)
writing from Marc Jones; Edited by Sharon Singleton
Our standards: The Trust Principles.