European stocks rallied in early trading on Friday, as a rescue package for shore up struggling US lender First Republic Bank restored the measure of confidence in the bank’s shares.
The region-wide Stoxx 600 rose 1 percent, while Germany’s Dax and France’s Cac 40 rose 0.9 percent. Britain’s FTSE 100 rose 1.2 percent.
The banking sector, which experienced a major sell-off during the week, recovered slightly, with the Euro Stoxx Banks index up 2.3 percent. Credit Suisse rose 3.7 percent, having been promised liquidity support by the Swiss National Bank on Wednesday.
US futures advanced modestly, amid news that struggling First Republic Bank will be taken over by a consortium of banks that will inject $30bn into the troubled lender.
JPMorgan Chase, Bank of America, Citigroup and Wells Fargo will deposit $5 billion. Goldman Sachs and Morgan Stanley will each put in $2.5bn, while BNY Mellon, PNC Bank, State Street, Trust and US Bank will deposit $1bn each.
“The US intervention at the weekend helped to limit the fear of contagion. What the market is saying is that this is not systemic, but the fundamentals are difficult to assess because there is no long-term solution for now,” said Nadège Dufossé, head of global multi-assets at Candriam.
Futures tracking the blue-chip S&P 500 rose 0.3 percent, while contracts for the tech-heavy Nasdaq also rose 0.3 percent. The S&P 500 on Thursday posted its biggest one-day gain since January.
Shares in First Republic closed up 10 percent on Friday, then fell 7.2 percent in premarket trading.
The European Central Bank on Thursday announced its decision to raise interest rates by 50 basis points, despite the financial turmoil that has led investors to speculate that it may pause its agenda. However, he ditched his previous commitment to keep “raising interest rates significantly at a steady pace”.
The ECB’s decision has strengthened bets that the Federal Reserve will go ahead with a 25bp rate hike, rather than pause. Investors are pricing in an 81 percent chance of a quarter point percentage rise.
Government debt markets were muted, with yields on two-year Treasury bills, the most sensitive to interest rate expectations, rising 0.03 percentage points to 4.16 percent and 10-year notes yielding 0.03 percentage points to 3.55 percent.
The two-year Bund yield rose 0.04 percentage points to 2.6 percent, and the 10-year contract was flat at 2.24 percent.
Advanced Asian markets have also been dragged down this week by fears of a banking crisis. Japan’s Topix rose 1.2 percent, South Korea’s Kospi gained 0.7 percent and Australia’s S&P/ASX 200 rose 0.4 percent. Hong Kong’s Hang Seng and China’s CSI 300 rose 1.6 percent and 0.5 percent, respectively.
In the currency market, the dollar index, a measure of the greenback against six peer currencies, fell 0.4 percent. The euro rose 0.4 percent and sterling rose 0.3 percent.
Brent crude and its U.S. equivalent West Texas Intermediate rose 0.7 percent after falling to their lowest prices in more than a year on Wednesday.