Blue-chip shares in Europe jumped on Tuesday, with equity markets growing in confidence amid the hope that a banking crisis may have been averted.
‘Whether or not it’s the calm before another storm rolls in markets have enjoyed today’s figurative blue skies, with banking stocks on the up and fears of a full-blown crisis receding,’ AJ Bell analyst Danni Hewson commented.
‘But even as the puddles begin to dry, investors are eyeing the horizon. Markets are betting tomorrow will bring a softer Fed response as central bankers wrestle with seemingly opposing needs. Inflation is still a real concern both in the US and the UK where new data is published tomorrow, but a credit shock would guarantee a destructive crash landing for the global economy.’
The FTSE 100 index closed up 132.37 points, 1.8%, at 7,536.22. The FTSE 250 ended up 283.97 points, 1.5%, at 18,779.10, and the AIM All-Share closed up 7.74 points, or 1.0%, at 804.96.
The Cboe UK 100 ended up 1.9% at 754.14, the Cboe UK 250 closed up 1.7% at 16,354.31, and the Cboe Small Companies gained 0.5% at 13,352.77.
Banking stocks led London’s lead index higher with Lloyds, Barclays, NatWest and Standard Chartered rising 4.4%, 5.2%, 5.9% and 4.7%, respectively.
In European equities on Tuesday, markets also reflected the more buoyant mood. The CAC 40 in Paris ended up 1.5%, while the DAX 40 in Frankfurt jumped 1.8%.
US Treasury Secretary Janet Yellen signalled further US government backing for deposits at smaller American banks if needed, a shift that seeks to protect parts of the country’s banking system struggling in the recent financial turmoil.
After signs that panicked depositors pulled savings out of regional banks in recent days, the US Treasury Secretary said guarantees offered to all depositors at the failed Silicon Valley Bank could be replicated at other institutions if needed.
‘The steps we took were not focused on aiding specific banks or classes of banks,’ Yellen said in a speech to the American Bankers Association on Tuesday.
‘Our intervention was necessary to protect the broader US banking system. And similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion.’
Stocks in New York were higher at the London equities close, with the Dow Jones Industrial Average up 0.4%, and the S&P 500 and the Nasdaq Composite each 0.6% higher.
The dollar was mixed on the eve of an eagerly-anticipated US interest rate decision, recovering lost ground after banking sector turmoil led to a re-pricing of Federal Reserve expectations.
The pound was quoted at $1.2192 at the London equities close Tuesday, down from $1.2270 at the close on Monday. The euro stood at $1.0778 at the European equities close Tuesday, up against $1.0723 at the same time on Monday. Against the yen, the dollar was trading at JP¥132.29, higher compared to JP¥131.47 late Monday.
The Federal Reserve started its two-day meeting Tuesday, with a decision on interest rates due tomorrow at 1800 GMT.
According to the CME FedWatch tool, markets believe there is a 78% chance the US central bank will lift interest rates by 25 basis points on Wednesday, with the remaining 22% expecting rates to stay at their current level.
Earlier this month, before the recent banking industry turmoil, which began with the collapse of Silicon Valley Bank, a 50-point hike was considered possible.
The Bank of England will make its monetary policy call on Thursday.
The UK government borrowed a record amount in February to support spending on energy support schemes, according to the Office for National Statistics.
UK public sector borrowing - excluding public sector banks - totalled £16.7 billion last month. This compared to £7.0 billion in February of last year.
The ONS said this was the highest February borrowing since monthly records began in 1993, largely due to substantial spending on energy support schemes.
In corporate news, Kingfisher reported a sharp drop in annual profit, as the lockdown boom in do-it-yourself house projects continued to ebb. Shares fell 2.0%.
AJ Bell analyst Russ Mould said the retailer was ‘always going to struggle’ to sustain growth momentum, after the DIY boom during the pandemic which helped boost its financial 2022 results.
‘The success during the pandemic effectively gave Kingfisher a new lease of life following years of struggles. Like many Covid winners, the DIY group will be hoping its recent success lives on and doesn’t fade away. It cannot be accused of sitting on its hands, but equally there is a risk that it has bitten off more than it can chew,’ Mould explained.
In the financial year that ended January 31, the B&Q-owner reported a pretax profit of £611 million, down 39% from £1.0 billion the year prior.
This reflected lower operating profit and the impact of impairments following significant increases in discount rates and revised future projections, the London-based company explained.
Adjusted pretax profit was £758 million, down 20% from £949 million. It had been forecast by market consensus to decline 22% to £741 million.
Manx Financial Group shares surged back toward their all-time high after the company reported a 70% increase in profit for the past year.
The owner of Conister Bank and an assortment of lending, leasing, broking and financial advice firms said its financial performance represented a record year, despite the economic backdrop.
Pretax profit increased to £5.2 million from £3 million, helped by Conister Bank increasing lending 9% to £231.4 million and the net interest margin increasing £6.4 million thanks to the Bank of England interest rate increases.
Executive Chair Jim Mellon said ‘we are well-positioned to support the growth in profitability for 2023’. The shares jumped 27% and ended near January’s all-time high of 29.75 pence.
Oil prices rose as investors slowly returned to riskier assets after the banking turmoil. Oil majors BP and Shell climbed 3.2% and 3.1% respectively.
Brent oil was quoted at $74.42 a barrel at the London equities close Tuesday, up from $72.31 late Monday.
In contrast, the safe haven qualities of gold were in less demand. The price of the yellow metal fell to $1,943.19 an ounce at the London equities close Tuesday, against $1,977.65 at the close on Monday.
In Wednesday’s UK corporate calendar, there are full year results from housebuilder Vistry and car dealer Pendragon.
The economic calendar for Tuesday has UK inflation figures at 0700 GMT and the US interest rate decision at 1800 GMT.
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