European stocks pared an early rally on Thursday and bonds fell as traders braced for a European Central Bank rate decision amid concerns about the outlook for economic growth, even as bank shares rebounded after Credit Suisse Group AG’s lifeline.
(Bloomberg) — European stocks pared an early rally on Thursday and bonds fell as traders braced for a European Central Bank rate decision amid concerns about the outlook for economic growth, even as bank shares rebounded after Credit Suisse Group AG’s lifeline.
The Stoxx Europe 600 index was about 0.2% higher after yesterday’s near-3% plunge. A gauge of bank stocks climbed about 1%, recovering some of yesterday’s 6.9% loss, with UBS Group AG rising more than 4%. Credit Suisse shares soared as much as 40% before paring the advance. The embattled Swiss lender has arranged to borrow as much as 50 billion francs ($54 billion) from a Swiss National Bank liquidity facility and will offer to buy back up to three billion francs of dollar- and euro-denominated debt.
The Swiss franc strengthened on the news in volatile trade after a sharp selloff Wednesday. The euro recovered from a two-month low ahead of an expected interest rate increase from the ECB later Thursday, with more investors now positioning for a 25 basis point move after earlier expectations for double that.
Treasury 10-year yields edged higher following steep declines in the previous session. Bond across Europe declined, with the German 10-year yield up 15 basis points. An index of the dollar fell.
“ECB policy makers will be grappling with the risk that sticking to the original plan to hike 50 basis points could further undermine confidence,” said Sarah Hewin, head of Europe and Americas research at Standard Chartered Plc. But with ECB staff forecasts likely indicating inflation still above target even by 2025, and hawks only last week advocating 50 basis-point hikes for the next four meetings, not tightening policy could be read by the market as an admission of underlying vulnerabilities.”
Contracts for the S&P 500 erased an early advance to trade little changed after the index fell 0.7% Wednesday. Tech stocks offered a bright spot as traders began to forecast interest rates climbing less than previously anticipated. Nasdaq 100 futures advanced Thursday after the benchmark posted its third day of gains on Wednesday. Adobe Inc. and Meta Platforms Inc. were among early gainers in premarket trading.
US banks rebounded in the premarket after the KBW Bank Index, one of the broadest measures of the US banking system, slumped more than 3% Wednesday. First Republic Bank shares steadied after falling more than a fifth after being cut to junk by two credit firms, dragging its decline over the past week to more than 70%.
Traders were almost evenly split on whether the Federal Reserve will increase interest rates when it meets next week. Market pricing now suggests the Fed will soon pivot and will cut rates by as much as 1% by the end of the year.
“Uncertainty is very high at the moment and there’s a lot of selling because of the shock from higher volatility and other factors,” said Ulrich Urbahn, head of multi-asset strategy and research at Berenberg. “The change in focus from inflation to growth concerns and financial stability has reversed the stock-bond correlation again. A stronger relief rally is not likely to happen before the Fed meeting.”
Elsewhere in markets, oil hovered near the lowest close in 15 months after a three-day rout started by the US banking crisis and accelerated by options covering. Gold held near a six-week high.
Key events this week:
- Eurozone rate decision, Thursday
- US housing starts, initial jobless claims, Thursday
- Janet Yellen appears before the Senate Finance Committee, Thursday
- US University of Michigan consumer sentiment, industrial production, Conference Board leading index, Friday
Some of the main moves in markets:
Stocks
- The Stoxx Europe 600 rose 0.2% as of 9:32 a.m. London time
- S&P 500 futures fell 0.1%
- Nasdaq 100 futures rose 0.2%
- Futures on the Dow Jones Industrial Average fell 0.2%
- The MSCI Asia Pacific Index fell 1.1%
- The MSCI Emerging Markets Index fell 0.8%
Currencies
- The Bloomberg Dollar Spot Index fell 0.1%
- The euro rose 0.3% to $1.0609
- The Japanese yen rose 0.4% to 132.89 per dollar
- The offshore yuan fell 0.1% to 6.9015 per dollar
- The British pound was little changed at $1.2063
Cryptocurrencies
- Bitcoin rose 0.6% to $24,531.58
- Ether fell 0.3% to $1,649.04
Bonds
- The yield on 10-year Treasuries advanced six basis points to 3.51%
- Germany’s 10-year yield advanced 16 basis points to 2.29%
- Britain’s 10-year yield advanced nine basis points to 3.41%
Commodities
- Brent crude rose 0.4% to $74.02 a barrel
- Spot gold was little changed
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Richard Henderson, Sujata Rao and Sagarika Jaisinghani.
(An earlier version of this story was corrected to show that Credit Suisse is seeking to buy back debt.)
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