A resurgent FTSE 100 gained on Tuesday as fears about the implications of the fire sale of Credit Suisse subsided.
Global markets have been engaged in a game of banking crisis ping pong over the past two weeks with the US first showing signs of weakness after SVB failed, Europe joining the saga with the sale of Credit Suisse as First Republic Bank shares collapsed on Monday.
Investors will be hoping we are passed the worst of it. On Tuesday, UK banks signalled we could be.
Barclays and Standard Chartered have suffered dearly as a result of the crisis but exploded higher early on Tuesday. Barclays was 4.6% and Standard Chartered added 3%.
The FTSE 100 is now down 0.6% year-to-date after breaking through to the all-time highs earlier this year.
“Initially sceptical of the deal, the market’s mood changed over the course of yesterday, with UBS shares ending higher after a sharp initial fall,” said Steve Clayton, head of equity funds Hargreaves Lansdown.
“There was no respite for First Republic Bank though, with the Californian lender’s stock almost halving last night. First Republic is seen as vulnerable to the same losses on longer term bond values and liquidity squeeze that brought Silicon Valley Bank down.”
Fed Interest Rate Decision
As fears about the global financial system diminish, attention will shift to tomorrow’s Federal Reserve interest rate decision.
At the beginning of March, it appeared the Fed would hike 50bps. However, after the events of the last two weeks, it is anyone’s guess as to what the actual decision will be.
There is a school of thought that recent developments themselves tighten financial conditions and alleviate the need for another rate hike.
The counterargument is inflation remains elevated and the US economy is sufficiently robust to stomach a rate hike.