Global stocks buoyant but mood remains skittish

London — Global shares rose on Wednesday as investors took heart from a greater degree of stability in the banking sector, though the sense of optimism wasn’t robust enough to severely knock safe-haven assets such as bonds or gold.

Asian stocks rallied lifted by news of Chinese conglomerate Alibaba’s plans to split into six units.

The sale of assets in Silicon Valley Bank (SVB), the regional US lender that collapsed earlier this month, has helped support risk appetite. Certain measures of market stress have eased and that has given equities, cryptocurrencies and commodities a boost in the past couple of weeks.

The MSCI All-World index rose 0.3% while European shares gained 0.92%, thanks in part to a rise in bank shares after UBS said it would rehire Sergio Ermotti to lead the company after its takeover of Credit Suisse .

The economic backdrop is healthier than it was six months ago and, despite some parallels with the financial crisis of 2008, the issues in the banking sector appear more contained for now. Still, given the uncertainty on the outlook for global interest rates, the mood is nervous.

“Sentiment is skittish at the moment and market will be prone to swings,” said Kallum Pickering, senior economist at Berenberg.

In the first congressional hearing into the collapse of SVB and Signature Bank, 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 vice-chair for supervision, criticised SVB for going months without a chief risk officer and how it modelled interest rate risk.

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

“What we’re trying to factor into the macroeconomic picture as a result of these banking stresses is a degree of liquidity hoarding and some cautious lending behaviour by the banks until they can fully understand the effects of monetary policy tightening,” he added.

The US regional KBW bank index has fallen 3.3% in the past week, but is still above its recent six-week lows.

“Investors have not completely lost their anxiety ... and hints of a big 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 shows US consumer confidence unexpectedly increased in March, despite recent financial market turmoil, but Americans continued to expect inflation to remain elevated on the next year.

A separate survey on Wednesday indicates German consumer sentiment is set to improve in April, thanks to a drop in energy prices, though a full recovery isn’t likely soon.

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

Markets are now pricing in a 60% chance of the Fed leaving interest rates unchanged at its next meeting.

The dollar index, which measures the performance of the US currency against six others, was little changed on the day at 102.46.

E-mini futures for the S&P 500 rose 0.92%, suggesting a buoyant start to trading later.

In the currency markets, the euro was up 0.14% at $1.0862, while sterling rose 0.15% to $1.2359.

The Japanese yen, a haven for many, fell 0.6% against the dollar to 131.65/$, after appreciating 0.5% the day before.

US Treasury yields edged lower, leaving the benchmark 10-year note down 3 basis points (bps) at 3.539% and the two-year note yield down 6 bps points at 4.006%.

Two-year yields have risen 50 bps from Friday’s six-month lows, reflecting improved investor confidence.

Gold fell 0.3% to $1,965 an ounce, but was still within sight of last week’s high around $2,000

Reuters