First Republic Bank's shares jumped nearly 22% before trading was halted on Thursday after several large banks were said to be in talks to deposit billions of dollars to salvage the embattled lender, three sources with knowledge of the matter said. Credit Suisse's shares spent most of the day up around 20% after the Swiss National Bank (SNB) swooped in with support.
Money markets are still largely pricing in a 25-basis-point rate hike by the Federal Reserve in March , while ECB President Christine Lagarde described its rate rise on Thursday, which took its key rate to 3%, as a "robust decision" to bring inflation back under control. "The implications for the Fed's meeting next week suggests that the Fed will raise rates 25 basis points based on futures probability, but will make it clear that the stability of the banking system remains strong," said Quincy Krosby, chief global strategist for LPL Financial in Charlottesville, Virginia. "At this stage, both the ECB and Fed are trying to find a viable balance between price stability and financial stability." The Dow Jones Industrial Average rose 272.40 points, or 0.85%, to 32,146.97, the S&P 500 . gained 54.90 points, or 1.41%, to 3,946.83 and the Nasdaq Composite gained 247.34 points, or 2.16%, to 11,681.39 at 2:54 p.m. EDT (1655 GMT). The MSCI world equity index , which tracks shares in 49 nations, gained 1.07%. Europe's STOXX 600 closed the day 1.3% higher, rebounding after dropping 0.6% immediately after the ECB rate hike news to touch a fresh 10-week low. The banking sector index gained 1.2%, bouncing back from an intraday 1% drop following the rate hike. The SNB confirmed early on Thursday that it would provide "liquidity" to Credit Suisse. The bank said it was taking "decisive action" and would borrow up to 50 billion Swiss francs ($53.76 billion).
Europe's banking stocks suffered their steepest one-day drop in more than a year on Wednesday in the wake of Credit Suisse's woes, which also followed the collapse of two U.S. banks last week. It has demonstrated what happens when major central banks like the U.S. Federal Reserve and the ECB raise interest rates by hundreds of basis points in a short period of time, Stefan Gerlach, chief economist at EFG Bank in Zurich and a former deputy governor at Ireland's central bank, said. "Whenever you do something that large, you know there is a risk waiting somewhere in the financial system," he said, speaking before the ECB decision was announced.
Germany's 2-year bond yield rose 16.5 basis points to 2.55%, after hitting earlier in the session its lowest level since the middle of December at 2.373%. The yield on benchmark 10-year Treasury notes rose to 3.56% compared with its U.S. close of 3.494% on Wednesday. The two-year yield , which rises with traders' expectations of higher Fed fund rates, touched 4.1175% compared with a U.S. close of 3.975%.
Overnight, Asian shares had fallen around 1% but it was largely a catch-up move and had none of the frenzy witnessed in Europe the previous day.
CONTAGION JPMorgan analysts said the loan from the SNB would not be enough to soothe investor concerns and the "status quo was no longer an option", leaving a takeover for Credit Suisse as the most likely outcome. Moritz Kraemer, chief economist at LBBW Bank in Germany, said that Credit Suisse wasn't an insolvency worry the way Silicon Valley Bank had been in the United States, but others still remained jittery.
"The word contagion is knocking about," said Damian Rooney, a dealer at Perth stockbroker Argonaut. "We're getting fear across the whole board here," he said. "The trouble is with the unwinding - you don't know what you don't know."
Overnight, MSCI's index of Asia-Pacific shares outside Japan fell 0.84% after earlier hitting its lowest level this year.
The euro was up 0.4% on the day at $1.0614, having
gained 0.36% in a month, while the dollar index , which
tracks the greenback against a basket of currencies of other
major trading partners, was down at 104.38.
Oil prices rose 2% on Thursday after dropping to near
15-month lows earlier in the session, supported by reports that
top producers Saudi Arabia and Russia met to discuss ways to
enhance market stability.
Spot gold prices rose 0.09% to $1,919.76 an ounce.
U.S. gold futures settled 0.4% lower at $1,923 per ounce.
($1 = 0.9270 Swiss francs)
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(Writing by Marc Jones; Editing by Sharon Singleton, William
Maclean and Susan Fenton)
