UK stocks are following Wall Street higher Friday while rising oil prices are giving energy stocks a boost. Our head of markets discusses the latest events affecting global financial markets.
Investors regained some poise after the tribulations of recent days, boosted by further actions to stem the potential of bank sector contagion.
In the US, the initial signs were not positive as the main indices swung into the red, with the Dow Jones falling over 300 points, largely in reaction to the European Central Bank’s decision to press ahead with a further interest rate rise of 0.5%. However, sentiment turned after news emerged that a consortium of banks announced that it would be depositing $30 billion with First Republic Bank in an effort to shore up its capital position.
The sentiment swing came despite reports that US banks had been seeking record amounts of emergency liquidity from the central bank in recent days which, while not alarming of itself, was a sign that the waves of caution had not yet subsided. Even so, the generally swift and decisive actions which have been taken have removed some of the sting from market volatility.
Elsewhere, claims for unemployment benefits unexpectedly fell for the week, indicating that the labour market remains tight. Jobs weakness has yet to wash through, in what is one of the last boxes which the Federal Reserve would wish to be ticked before tapping on the monetary tightening brakes. As such, the consensus has reverted to expecting an interest rate of 0.25% at the March meeting, with only a minor chance of the Fed deciding to pause its hiking action on the back of recent developments.
At the close of business, each of the indices had swung into comfortably positive territory, with particular buying interest in technology stocks in the hope that the troubles of the last week could force a rethink of the Federal Reserve’s hiking policy. The surge in the Nasdaq left the index ahead by 12% in the year to date. In comparison, the S&P500 is now up by 3.2%, although the Dow Jones index has not recovered from the recent turmoil and has fallen by 2.7% so far this year.
Asian markets were mixed to positive following the strong end to the US session. Singapore, Australia and New Zealand released comments that they were monitoring the banking fallout but remained confident that their local banks were sufficiently capitalised and able to withstand any major shocks. In China, a strong gain in house prices for February suggested that the economic recovery is taking traction, boosting shares in the region and providing a welcome positive relief to the news of recent days.
The general waves of relief also washed over to UK shores, with the main indices again reflecting a more positive frame of mind for now. Banks recovered some of the losses of the last week, although there remains some way to go before the potential of contagion can be definitively dismissed and those share prices be able to return to their previous levels .
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Meanwhile, resource stocks also saw benefit from some renewed strength in the oil price, although that price is still down by 13% this year. Broker upgrades to the likes of the London Stock Exchange Group (LSE:LSEG) and GSK (LSE:GSK) also underpinned something of a return to a risk-on approach by investors.
The brisk opening returned the FTSE100 to marginally positive territory for the year, where it has now added 0.5%, although remaining some way off its recent record high. The FTSE250 is not far behind and broadly unchanged in the year to date, with investors generally not ready to commit to a full market recovery until the financial picture becomes clearer.
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