The FTSE 100 was gaining on Tuesday as the index bounced back from the SVB-induced volatility with banks and financials driving the recovery.
The FTSE 100 was 0.8% higher at the time of writing. Despite the volatility over the past few trading sessions, the index is still positive for 2023.
Rolls Royce was the top riser, gaining over 3%, but the rally was broad with banks and financials featuring heavily among the best performers on the day.
Barclays and Lloyds were both more than 2% stronger, although they were still significantly below pre-SVB levels. A strong bounce back from US banks was helping improve sentiment and enticed bargain hunters.
“There was a sense some calm had been restored to markets after a bruising few sessions,” said AJ Bell investment director Russ Mould.
US CPI
A rally in stocks progressed through the session as the index attempted to recover the past sessions losses. The steady tick higher enjoyed a boost from US CPI which came in bang in line with estimates of 6%.
The data confirmed US inflation was trending lower, but still remained at historically high levels. In the wake of SVB’s collapse, this poses a problem for the Federal Reserve who will announce their interest rates decision next week.
Some market participants will expect the Federal Reserve to push on with higher rates to validate their measures to stabilise the financial system over the weekend. This may upset equity investors looking forward to a Fed ‘pivot’
“As inflation continues to remain elevated, more work will likely be required to restore price stability. However, the recent events in the banking sector will signal to the Fed to tread cautiously when implementing additional monetary policy tightening,” said Nathaniel Casey, Investment Strategist at Evelyn Partners.
The debate between a 25bps or 50bps interest rate hike was briefly superseded by SVB, one would expect this to return with a vengeance as we approach next week’s rate decision.