European share were starting the week positively, and Wall Street was pointed to a higher open, after a deal was agreed for a US bank to take over the assets of failed Silicon Valley Bank.
The FTSE 100 index was up 66.88 points, 0.9%, at 7,472.33 midday Monday in London. The FTSE 250 was up 91.90 points, 0.5%, at 18,585.73, and the AIM All-Share was up 1.23 points, 0.2%, at 801.65.
The Cboe UK 100 was up 0.9% at 747.17, the Cboe UK 250 up 0.6% at 16,147.22, and the Cboe Small Companies up 0.3% at 13,271.44.
North Carolina-based First Citizens Bancshares said it has agreed to purchase all loans and deposits from failed California lender SVB. The collapse of SVB earlier this month triggered fears about the banking sector sector globally.
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.
Swissquote Bank Senior Analyst Ipek Ozkardeskaya: ‘Despite the bank stress on both sides of the Atlantic, the Federal Reserve, the European Central Bank, the Bank of England and the Swiss National Bank haven’t refrained from hiking interest rates over the past two weeks, weighing - not necessarily on the health of the banks’ balance sheets - but on worries regarding the health of the banks’ balance sheets.
‘Today, it appears that the banking crisis is more of a confidence crisis than a fact-based panic, as was the case in 2007 when banks really had a bunch of toxic assets in their balance sheets.’
On Wednesday last week, the Fed raised US interest rates by a quarter of a percentage point resisting the urge to pause hikes in the face of banking sector turmoil. The following day, the Bank of England decided to take the bank rate to 4.25% from 4.00% previously. The week before, the ECB had gone ahead with a 50-point hike, and the SNB followed with the same.
‘The key takeaway from last week‘??s central bank decisions is that banking sector stresses won’t derail the global fight against inflation,’ commented Brown Brothers Harriman, adding: ‘We expect the dollar rally to resume after this current bout of market turmoil fades and markets are one again able to focus on the fundamentals.’
International Monetary Fund chief Kristalina Georgieva on Sunday warned that risks to financial stability have 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 a 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.
Banking stocks 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 5.3% at midday Monday in Frankfurt, though it remains down 22% in the past month.
In the FTSE 100, banking stocks saw some recovery on hopes a full-blown banking crisis may be avoided. Barclays was up 2.5%, Lloyds Banking up 0.9%, NatWest up 0.6%, and HSBC up 0.5%.
Sterling was quoted at $1.2256 at midday on Monday, up from $1.2222 at the London equities close on Friday. The euro traded at $1.0765, marginally higher than $1.0753. Against the yen, the dollar was quoted at JP¥131.43, up versus JP¥130.69.
On London’s AIM market, Scotgold Resources plummeted 64%.
The Scottish gold producer said gold grades at 430 West ore drive declined ‘significantly’ in late February and early March, reducing total ore production. ‘The 430 West ore drive turned to waste, contradicting the grade control model,’ ScotGold said.
The company warned of a ‘material uncertainty’ that could exist if the commencement of long hole stope mining is delayed and ore mining continues to be below the mine plan.
In order to strengthen its cash position, Scotgold is discussing a $500,000 advance with its gold offtake partner to assist with short-term working capital. The directors are also mulling a short-term convertible loan.
ImmuPharma shares jumped 20%.
The drug discovery and development company said it has submitted a phase 2/3 clinical trial protocol to the US Food & Drug Administration testing the Lupuzor treatment for lupus patients. The new design takes into account the FDA’s key guidance points from a previous ’Type C’ meeting alongside insights from its pharmacokinetic study completed last year.
A Type C meeting with the FDA has been requested, and the company will update the market with the date of the meeting once confirmed by FDA, ImmuPharma said.
In European equities on Monday, the CAC 40 in Paris was up 1.1%, and the DAX 40 in Frankfurt was up 1.3%.
Stocks in New York were called to open higher. The Dow Jones Industrial Average and the S&P 500 index both were called up 0.5%. The Nasdaq Composite was called up 0.3%. On Friday, the indices closed up 0.4%, 0.6%, and 0.3%, respectively.
Brent oil was quoted at $75.31 a barrel at midday in London on Monday, up from $74.07 late Friday. Gold was quoted at $1,954.39 an ounce, down from $1,984.10.
Still to come on Monday’s economic calendar, Bank of England Governor Andrew Bailey speaks at 1800 BST.
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