An agreement for the takeover of the assets of failed Silicon Valley Bank improved market sentiment early Monday, allowing bank shares to recover some ground.
The FTSE 100 index opened up 39.32 points, 0.5%, at 7,444.77. The FTSE 250 was up 36.07 points, 0.2% at 18,529.90, and the AIM All-Share was up 0.74 of a point, 0.1%, at 801.16.
The Cboe UK 100 was up 0.6% at 744.53, and the Cboe UK 250 was up 0.1% at 16,076.47, but the Cboe Small Companies was marginally lower at 13,233.32.
In European equities on Monday, the CAC 40 in Paris was up 1.2%, while the DAX 40 in Frankfurt was up 1.1%.
Raleigh, North Dakota-based lender First Citizens Bancshares said it has agreed to purchase all loans and deposits from Silicon Valley Bank, whose collapse this month sparked global fears about the sector.
SVB, a key lender to the tech industry since the 1980s, became the biggest US bank to fail since 2008 when regulators seized it after a sudden run on deposits.
Regulators created Silicon Valley Bridge Bank from SVB after the collapse, and that entity will be taken over by First Citizens from Monday.
The news is ‘helping repair sentiment towards the sector’, said AJ Bell’s Russ Mould.
Banking stocks had closed last week sharply lower, with Deutsche Bank bearing the brunt of the losses, falling 8.5% on Friday, as the price of its credit default swaps shot up. The stock was up 1.4% early Monday in Frankfurt, though remains down 21% so far in 2023.
‘Bargain hunters were out in force for Europe’s banks following the chaos of the past few weeks. Deutsche Bank jumped more than 4% in early trading, regaining some of the territory lost last week when its share price plummeted,’ AJ Bell’s Mould said.
In the FTSE 100, bank constituents were making a modest recovery. Barclays was up 2.6%. Standard Chartered and NatWest were up 1.7%. Lloyds Banking added 1.6%, and HSBC gained 1.4%.
‘That naturally turns the attention back to central banks where there are lingering concerns that some like the Federal Reserve might have made policy mistakes, going too fast and hard with interest rate rises. It means that worries are merely shifting to something else on the menu, rather than having a clean slate with which to drive a new global market rally,’ Mould continued.
International Monetary Fund chief Kristalina Georgieva had taken a cautious stance over the weekend, warning on Sunday that risks to financial stability had increased and stressed ‘the need for vigilance’ following the recent turmoil in the banking sector.
Speaking at a forum in Beijing, the IMF managing director said she expected 2023 ‘to be another challenging year’, with global growth slowing to below 3.0% due the war in Ukraine, monetary tightening and ‘scarring’ from the pandemic.
‘Uncertainties are exceptionally high,’ with the outlook for the global economy likely to remain weak over the medium term, Georgieva told the China Development Forum.
The outlook for the US also is looking less than rosy, according to survey of economists.
The US will likely enter a recession this year and face high inflation well into 2024, a majority of economists predicted in their response to a semi-annual survey.
More than two-thirds of respondents to the National Association for Business Economics Policy Survey also see inflation remaining above 4% at the end of this year.
The dollar was mixed against major currencies in early trade in London, being down against the pound and euro but up against the yen.
Sterling was quoted at $1.2250 early Monday, up from $1.2222 at the London equities close on Friday. The euro traded at $1.0766, higher than $1.0753. Against the yen, the dollar was quoted at JP¥131.31, up versus JP¥130.69.
Stocks in New York ended higher on Friday, with the Dow Jones Industrial Average up 0.4%, the S&P 500 up 0.6%, and the Nasdaq Composite up 0.3%
In Asia on Monday, stocks were mixed. The Nikkei 225 index in Tokyo closed up 0.3%. In China, the Shanghai Composite closed down 0.4%, while the Hang Seng index in Hong Kong was down 1.5%. The S&P/ASX 200 in Sydney closed up 0.1%.
Miners were weighing on London’s largecap index, with Rio Tinto down 1.6%, and Antofagasta down 1.5%, and Glencore shedding 1.3%.
Gold was quoted at $1,965.73 an ounce early Monday in London, lower than $1,984.10 late on Friday. Brent oil was trading at $75.65 a barrel, up from $74.07.
On AIM in London, Tortilla Mexican Grill shares were flat after saying revenue in the year that ended January 1 rose 20% to £57.7 million from £48.1 million, ‘driven by a record year of new site openings’.
The Mexican food chain added 18 sites net to its portfolio, bringing the total number to 82 at the end of the year. Like-for-like revenue was up 16% from 2019 levels. However, it swung to a pretax loss of £928,549 from a profit of £2.3 million. This was as admin expenses climbed 19% to £43.6 million from £36.5 million.
In the period since the year’s end, trading has been in line with expectations, and the board is confident of meeting market expectations for 2023.
‘We know that restaurants that offer great, consistent food at competitive price points will always be the winners in our sector, and we are confident that we sit very comfortably in this space,’ said CEO Richard Morris.
Shore Capital said Tortilla’s like-for-like revenue growth was slightly ahead of its expectations. The broker rates the stock a ’hold’. ‘We don’t sense, at first glance, that the update today will lead to material changes to our forecasts,’ it said.
Pressure Technologies jumped 9.5%.
The specialist engineering group said its subsidiary AI-Met, a part of the Precision Machined Components division, won a £3 million order from a ‘established international original equipment manufacturer customer’.
The company said the order is ‘unprecedented’ and will provide ‘substantial order book coverage and visibility’ for the first half of financial 2023.
CEO Chris Walters said he was ‘delighted’ with the order, and it underpins the company’s expectations for the full year, including returning to profit at the end of this quarter.
Genel Energy was down 9.7% and Gulf Keystone Petroleum down 19%. Shares in the two oil producers were being sold after Turkey stopped oil exports from Iraq’s autonomous Kurdistan region, where the pair operate.
Still to come on Monday’s economic calendar, there’s the Ifo German business climate index at 0900 BST. Bank of England Governor Andrew Bailey speaks at 1800 BST.
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