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STOXX 600 up 0.8%
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Tech top gainer, banks up
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Ermotti returns to UBS
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U.S. stock futures rise
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US BANKING RISKS FAR MORE WORRISOME THAN THEY MAY SEEM? (0907 GMT) Risks to the U.S. banking system are far more serious than regulators are letting on, according to Nikhil Bhatnagar, executive director and head of capital markets at Auerbach Grayson. "Far too much lending has happened to areas that cannot afford 5% policy rates, excluding credit spreads, and added to that, there has been risky behaviour by a large part of the system actively engaged in inflating startup valuations through easy venture debt," Bhatnagar told the Reuters Global Markets Forum. "Bank risk can devolve into venture debt risk and eventually private credit markets -- is the Fed going to guarantee venture debt and private credit funds as well? It will be politically unfeasible. But there may be a few more dominos to collapse here," he said. Still, today’s risks look different from the 2008 financial crisis as the sector hasn’t extended into the venture capital market as much as the housing sector had in the previous crisis – but systemic risks loom large, Bhatnagar said. "While the system can be defended if required, it comes at a time of entrenched inflation and not a deflationary scenario, which can have a domino effect on the currency if the message has to be reversed later this year." As turmoil unfolds in global markets, traders now bet the Fed has reached or is near the end of its rate hiking cycle. But much of the 'stagflation' in the current environment is out of the Fed’s reach since the policy errors have already been made by keeping rates too low, he added. "Sooner or later, they will have to save the system and abandon the inflation bogeyman."
(Savio Shetty and Anisha Sircar)
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TECH LIFTS STOXX 600 (0827 GMT)
Europe's STOXX 600 is on the up, rising 0.6% as the general mood improves and bank
jitters recede.
Tech names are the biggest winners on a sector basis, up 1.6%, while retail is a drag, down 1.4%.
Reflecting the improved mood, a gauge of European volatility briefly hit its lowest level since March 10, the day of SVB's collapse, and was last down 1.3 points at 20.8.
Ex-dividend Maersk shares are down 27% at the bottom of the index, while OCI is at the top, rising 12.5% after activist investor Jeff Ubben's Inclusive Capital Partners urged the Dutch fertilizer to explore strategic options and said the is worth nearly double its 5.54 billion euros market value. Infineon shares are up 6.6% after the German chipmaker raised its outlook both for second quarter and the whole of 2023. Switzerland semiconductor company STMicroelectronics is also up 5.2%.
(Lucy Raitano)
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ALIBABA FIRES UP MARKET MOOD (0638 GMT) Just as investor angst over U.S. and European banking troubles eases, the potential end of China's multi-year regulatory crackdown on the tech sector is also cheering up markets. An unprecedented revamp of Chinese tech conglomerate Alibaba Group, which analysts believe to have the blessings of local regulators, pushed up Alibaba's U.S.-listed stock, and then its Hong Kong shares on Wednesday. Companies in China's internet, private education and property sectors have lost billions of dollars in market value in recent years as the country's regulators cracked down on their operations. Although a lacklustre 0.6% rise in Asia's main stock market gauge, led by Hong Kong tech names, shows that animal spirits haven't returned yet, there's hope for investors who have been left licking their wounds from recent market declines, especially in bank and tech stocks. Global investor confidence remains fragile, with the European Central Bank (ECB) saying that recent volatility highlights the need for greater regulatory scrutiny. As U.S. banking contagion worries ebb, some investors are scouting for shares of fundamentally strong regional lenders that were swept up in this month's epic sell-off. Overnight, a survey showed that U.S. consumer confidence unexpectedly increased in March despite recent financial market turmoil, but Americans still expect inflation to remain elevated over the next year. Bloomberg News reported that Credit Suisse Group investors are being urged to vote against a share-based transformation award for executives and ratifying the actions of the board of directors and management at the upcoming annual general meeting.
Meanwhile, U.S. prosecutors unveiled a new indictment against Sam Bankman-Fried, accusing the founder of the now-bankrupt FTX cryptocurrency exchange of paying a $40 million bribe to Chinese officials so they would unfreeze his hedge fund's accounts. And in Asia, geopolitical tensions are heating up with China threatening to retaliate if U.S. House Speaker Kevin McCarthy meets Taiwan President Tsai Ing-wen during her planned transit of the United States, saying any such move would be a "provocation". Key developments that could influence markets on Wednesday:
European economic data: Spain flash March CPI, Germany March CPI, Euro zone March business/consumer sentiment Speakers: ECB board member Isabel Schnabel
(Anshuman Daga)
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EUROPEAN FUTURES TICK HIGHER(0628 GMT) European futures are flashing green this morning, supported by receding jitters around bank stocks. Those on the STOXX 50 and DAX are up 0.4%-0.5%, while FTSE futures are lagging, up 0.1%. U.S. futures are up 0.6%.
Markets may be getting a small lift as fears of more banking turmoil fade, but they are also reflecting that recession fears are still lurking.
German consumer sentiment was seen nudging up in April as energy prices have relented somewhat from record highs, though a full recovery is not in sight anytime soon, showed a GfK institute survey on Wednesday. UBS's massive takeover of neighbour Credit Suisse remains at the forefront, with news this morning that UBS has rehired Sergio Ermotti as CEO.
Shares in German chipmaker Infineon jumped 4.6% in pre-market trade after it raised its outlook both for second quarter and the whole of 2023.
(Lucy Raitano)
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