Credit Suisse Bailout Lifted European Markets, ECB Hikes Rates

Bridgette Randall
16 Mar, 2023
Frankfurt

European markets rebounded and closed higher and the European Central Bank announced rate hikes matching expectations. 

Benchmark indexes rebounded from one-year lows after bank stocks advanced following the Credit Suisse announcement. 

The Swiss National Bank agreed to provide emergency lending of as much as 50 billion Swiss francs or $54 billion after the troubled lender's largest shareholder rejected calls to pump more liquidity. 

The move to support the bank lifted banks across Europe and the broader market followed higher. The market mood further improved after several largest U.S. banks agreed to pump $30 billion in deposits  in the Los Angeles-based First Republic Bank. 

Investors also reviewed the latest rate hike of 50 basis points and the downward revision in inflation and a slight upward revision in economic growth by the European Central Bank. 

 

ECB Hikes Rates by 50 Basis Points 

The European Central Bank lifted its key lending rate by 50 basis points and said it is ready to provide more liquidity if banks need it. 

"Inflation is projected to remain too high for too long. Therefore, the Governing Council today decided to increase the three key ECB interest rates by 50 basis points, 

in line with its determination to ensure the timely return of inflation to the 2% medium-term target," noted the statement released by the European Central Bank. 

After the latest rate hike, the deposit rate will increase to 3.0%, the rate on the marginal lending facility will increase to 3.75% and refinancing operation to 3.50%. 

The European Central Bank has been raising rates as inflation stays near four-decade high and shows little sign of easing. 

The overall inflation in February in the 20-member Euro Area was estimated at 8.5%, significantly higher than the central bank's target level of 2%.  

The recent inflation surge was driven by a sharp jump in energy price but now the inflationary forces are fueled by price increase in food, industrial goods and services. 

The central bank said inflation in the Euro Area is expected to cool to 5.3% in 2023 and 2.9% in 2024 from 6.3% and 3.4% in December. 

and revised higher its baseline estimate of the economic growth from its previous projection in December to 1.0% in 2023.

The economic expansion is expected to gain a slight pace to 1.6% in 2024 and 2025. 

President Christine Lagarde was keen to highlight that the recent market turmoil is different from what transpired during the global financial crisis of 2008. 

"The euro area banking sector is resilient, with strong capital and liquidity positions. 

In any case, the ECB’s policy toolkit is fully equipped to provide liquidity support to the euro area financial system if needed and to preserve the smooth transmission of monetary policy," noted the statement released by the European Central Bank. 

 

Indexes & Yields 

The DAX index increased 1.6% to 14,967.10, the CAC-40 index rose 2.0% to 7,025.72 and the FTSE 100 index advanced 0.9% to 7,410.03. 

The yield on 10-year German Bunds rose to 2.26%, French bonds advanced to 2.80%, the UK gilts to 3.47% and Italian bonds to 4.15%. 

The euro inched higher to $1.06, the British pound edged up to $1.21 and the Swiss franc to 92.92 cents. 

Brent crude oil increased $1.04 to $74.73 a barrel and the Dutch TTF natural gas price edged up 70 cents to Є43.60 per MWh. 

 

Europe Movers 

Credit Suisse AG jumped 19.2% to Sfr 2.02 after the Swiss bank said it will borrow up to 50 billion Swiss francs ($54 billion) from the Swiss National Bank. 

Two days ago, Saudi National Bank, the largest shareholder in the bank said it would not inject additional liquidity in the embattled bank. 

The move to provide liquidity to the troubled Swiss bank lifted stocks of other banks in the Euro Area. 

Deutsche Bank, BNP Paribas, Societe Generale and Commerzbank added between 2% and 3%. 

Siemens Energy AG increased 5.1% to €19.16 after the company completed secondary stock offering and raised €1.259 billion. 

The company sold 72.66 million shares priced at 17.32 a share through an accelerated book building process.  

The net proceeds from the offering will be used to partially refinance the voluntary cash tender offer for all outstanding shares in Siemens Gamesa Renewable, S.A.

Investec Plc increased 3.5% to 455.30 pence after the wealth management firm estimated higher operating profit in the year ending in March. 

United Utilities Group Plc increased 1.0% to 1,064.50 pence after the company said its chief executive Steve Mogford will retire at the end of March. 

Centamin Plc fell 5.4% to 101.30 pence despite the gold mining company reporting higher pre-tax profit in fiscal 2022 on rising revenue.