Blue-chip shares in Europe closed markedly higher on Monday, as banking sector contagion fears were somewhat soothed, though likely not completely eliminated, by the buyout of Credit Suisse by UBS.
Credit Suisse shares slumped 56% on Monday, as the $3.25 billion sum for the UBS deal fell some way short of its stock market valuation on Friday. UBS rose 1.3%.
The FTSE 100 index closed up 68.45 points, 0.9%, at 7,403.85. The FTSE 250 ended up 24.30 points, 0.1%, at 18,495.13, but the AIM All-Share closed down 6.81 points, or 0.9%, at 797.22.
The Cboe UK 100 ended up 0.9% at 740.38, the Cboe UK 250 closed up 0.3% at 16,083.56, but the Cboe Small Companies ended down 0.9% at 13,293.05.
In European equities on Monday, markets reflected the more buoyant mood. The CAC 40 in Paris ended up 1.3%, while the DAX 40 in Frankfurt ended up 1.1%.
‘The shotgun wedding between UBS and Credit Suisse does seem to have diffused some of the tension from the global banking sector today, but investor confidence has been badly shaken and despite liberal applications of monetary putty there are still a few visible cracks,’ AJ Bell analyst Danni Hewson commented.
The investment banking deal followed crunch talks on Sunday aimed at stopping the stricken bank from triggering a wider international banking crisis.
The Swiss government said the agreement, involving Switzerland’s biggest bank taking over the second-largest, was vital to prevent irreparable economic turmoil spreading throughout the country and beyond.
The move was welcomed in Washington, Brussels and London as one that would support financial stability.
Separately, the Federal Reserve and other global central banks announced fresh measures to improve US dollar liquidity.
In a joint statement released on Sunday, the world’s leading central banks said that they will launch daily operations to make funding available via standing swap lines. Previously, those operations were conducted on a weekly basis.
The Fed, European Central Bank, Bank of England and the Swiss National Bank are among those involved in what was described as a ‘co-ordinated action’. They were joined by the Bank of Canada and the Bank of Japan.
Banking shares recovered after opening sharply lower. Lloyds closed down just 0.3%, NatWest lost 0.1% while HSBC fell 0.3%.
Mining stocks topped the FTSE 100, meanwhile, aided by a softer dollar.
Antofagasta rose 4.6%, Fresnillo advanced 4.5% and Anglo American firmed 5.1%, the best three blue-chip performers. Shares in miner Glencore rose 4.3%. UBS upgraded the stock to ’buy’ from ’hold’.
The Swiss investment bank made the case that the risk/reward is now attractive after the recent sell-off.
The fall-out from events in the banking sector added uncertainty to interest rate decisions in the UK and the US this week.
Goldman Sachs expects the Bank of England to continue with its monetary tightening despite the uncertainty in financial markets but suggested this could be the last increase in rates.
‘We maintain our view that the BoE is more likely than not to hike 25bp next week, but we no longer expect the BoE to hike in May and lower our terminal rate to 4.25%,’ economists at the US investment bank said.
But analysts at Davy believe the Bank of England is far more likely to take a ‘wait and see approach’ at Thursday’s meeting, holding rates at 4%, although Wednesday’s CPI figures could alter the picture.
The dollar weakened on speculation ahead of the two-day meeting of the Federal Open Market Committee.
Banking sector unrest has meant Fed tightening expectations have eased, hurting the greenback.
The pound was quoted at $1.2270 at the London equities close Monday, up from $1.2168 at the equities close on Friday. The euro stood at $1.0723 at the European equities close Monday, up against $1.0665 at the same time on Friday. Against the yen, the dollar was trading at JP¥131.47, lower compared to JP¥132.12 late Friday.
Back on the London Stock Exchange, shares in Tribal Group fell 18% after the education support services group said Nanyang Technology University has purported to terminate its contract and reserved rights to claim damages.
Tribal rejected NTU’s right to terminate and is considering its options regarding appropriate next steps. The dispute will now go to mediation.
Consequently, the company has revised the publication date of its annual results to March 24 to allow it time to consider the impact of the contract termination, particularly the accounting treatment of a £4.5 million onerous contract provision contained within previous expectations.
Stocks in New York were mixed at the London equities close, with the Dow Jones Industrial Average up 0.9%, the S&P 500 index up 0.5%, but the Nasdaq Composite down 0.1%.
Brent oil was quoted at $72.31 a barrel at the London equities close Monday, down from $73.43 late Friday.
Gold was quoted at $1,977.65 an ounce at the London equities close Monday, up against $1,957.76 on Friday.
In Tuesday’s UK corporate calendar, there are full year results from DIY retailer Kingfisher and a trading statement from grocer Ocado.
The economic calendar for Tuesday sees the start of the two-day Federal Open Market Committee meeting, while UK Chancellor Jeremy Hunt takes questions from MPs, just days after his budget.
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