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European stocks higher; confidence returns ahead of Fed meeting

Published 03/21/2023, 04:58 PM
© Reuters

By Peter Nurse - European stock markets traded higher Tuesday, rebounding as confidence returns to the banking sector ahead of the start of the latest Federal Reserve policy-setting meeting.

At 04:45 ET (08:45 GMT), the DAX index in Germany traded 1.1% higher, the CAC 40 in France climbed 1.2% and the FTSE 100 in the U.K. rose 1.2%.

Investors have taken some heart from the rescue of troubled lender Credit Suisse (SIX:CSGN) by its Swiss rival UBS (SIX:UBSG), with UBS stock climbing over 3% Tuesday, dragging the rest of the embattled sector higher.

Additionally, global banks borrowed on Monday only small amounts from the Federal Reserve’s dollar swap line, suggesting there was little funding stress.

That said, it’s probably too early to call an end to the banking turmoil, given difficult conditions still exist for the smaller U.S. banks as well as potential ructions in the bond markets after the losses imposed on Credit Suisse’s junior bondholders.

Attention is now on this week's meeting of the Federal Reserve, with its two-day get-together starting later this session. The turmoil in the banking sector has created a degree of uncertainty over whether the U.S. central bank will continue to lift interest rates to fight elevated inflation.

The same applies in Europe.

"Clearly financial stability tensions might have an impact on demand and might actually do part of the work that would otherwise be done by monetary policy and interest rate hikes," European Central Bank President Christine Lagarde told European lawmakers on Monday.

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The ECB raised its benchmark interest rates by 50 basis points to 3% last week, hiking rates at six consecutive meetings since July.

The main economic release due Tuesday will be Germany’s ZEW survey of economic sentiment for March, which is expected to show a drop to 17.1 from 28.1.

In corporate news, RWE (ETR:RWEG) stock rose 2.9% after Germany's largest utility announced plans to increase its dividend even as it expects operating profit to fall in 2023, citing lower margins at its gas-fired power plants.

Kingfisher (LON:KGF) stock rose 0.6% after the British home improvement retailer reported better-than-expected annual income and said its operations were "well positioned" in the current fiscal year.

Oil prices rose Tuesday, bouncing after recent hefty losses but confidence remains frail after a week of turmoil in the banking sector and ahead of a Federal Reserve interest rate decision this week.

The American Petroleum Institute is scheduled to release its estimate of U.S. crude inventories later in the session. They rose by just over 1 million barrels last week, resuming their climb after a one-week decline,

The API numbers serve as a precursor to official inventory data on the same due from the U.S. Energy Information Administration on Wednesday.

By 04:45 ET, U.S. crude futures traded 1.1% higher at $68.57 a barrel, while the Brent contract climbed 1% to $74.54. The benchmarks fell to 15-month lows at the start of the week.

Additionally, gold futures fell 0.7% to $1,969.75/oz, while EUR/USD traded 0.1% higher at 1.0731.

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