Global shares rise as bank support emboldens investors

Amanda Cooper | March 29, 2023

Global shares have risen as investors took heart from a greater degree of stability in the banking sector, but the sense of optimism has been robust enough to severely knock safe-haven assets such as bonds or gold.

Meanwhile, shares in Asia rallied on Wednesday after Chinese conglomerate Alibaba’s plans to split into six units lifted tech stocks.

The sale of assets in Silicon Valley Bank (SVB), the regional lender that collapsed earlier this month, has helped prop up investor risk appetite. Certain measures of market stress have eased, which has given equities, cryptocurrencies and commodities a boost in the past couple of weeks.

The MSCI All-World index rose 0.3 per cent while European shares gained 0.92 per cent, thanks in part to a rise in bank shares after UBS said it would rehire Sergio Ermotti to lead the company after its takeover of Credit Suisse.

The economic backdrop is healthier than it was six months ago and, despite some parallels with the financial crisis of 2008, the current issues in the banking sector appear more contained for now. But, given the uncertainty over the outlook for global interest rates, the mood is nervous.

“Sentiment is skittish at the moment and market will be prone to swings,” Berenberg senior economist Kallum Pickering said.

In the first congressional hearing into the collapse of two US regional lenders, lawmakers pressed the Federal Reserve’s top banking regulator on whether the central bank should have been more aggressive in its oversight of SVB.

Michael Barr, the Fed’s vice-chairman for supervision, criticised SVB for going months without a chief risk officer and how it modelled interest rate risk.

“From a macroeconomic perspective, we should be relaxed about the fact that major banks, on both sides of the Atlantic, are well capitalised, have lots of deposits, and regulators and central banks seem absolutely committed to preventing any significant systemic event,” Pickering said.

“What we’re trying to factor into the macroeconomic picture as a result of these banking stresses is a degree of liquidity hoarding and some cautious lending behaviour by the banks until they can fully understand the effects of monetary-policy tightening,” he added.

A survey on Tuesday showed US consumer confidence unexpectedly increased in March, despite recent financial market turmoil, but Americans continued to expect inflation to remain elevated over the next year.

A separate survey on Wednesday showed German consumer sentiment is set to improve in April, thanks to a drop in energy prices, although a full recovery isn’t likely soon.

The dollar index, which measures the performance of the US currency against six others, was roughly flat at 102.46.

In the currency markets, the euro was up 0.14 per cent at $US1.0862, while sterling rose 0.15 per cent to $US1.2359.

The Japanese yen, a go-to safe-haven for many, fell 0.6 per cent against the dollar to 131.65 per dollar after rising 0.5 per cent the day before.

US Treasury yields edged lower, leaving the benchmark 10-year note down three basis points at 3.539 per cent and the two-year note yield down 6 bps at 4.006 per cent.

Two-year yields have risen by a full 50 bps from Friday’s six-month lows, reflecting greater investor confidence.

Gold meanwhile fell 0.3 per cent to $US1,965 an ounce, but was still within sight of last week’s highs around $US2,000.

In commodities, oil gained for a third straight day on improving market sentiment. 

US crude rose 0.59 per cent to $US73.63 per barrel and Brent was at $US79.27, up 0.8 per cent on the day, while US crude futures rose 1.1 per cent to $US74 a barrel.