Global stocks rally on 'dovish' ECB hike, First Republic relief package
Wall Street rallied Thursday after a consortium of US private banks announced a $30 billion rescue package for First Republic, while European stocks jumped on a European Central Bank's interest rate decision that was called a "dovish hike."
Shares of beleaguered First Republic did a dramatic U-turn from down more than 30 percent to up around 10 percent after JPMorgan Chase, Bank of America and other private giants unveiled a dramatic package of deposits by 11 large banks to shore up the California bank.
"The actions of America's largest banks reflect their confidence in the country’s banking system," the group said of a plan that was coordinated by American regulators.
Major US indices, which had opened the day in the red, also pushed into positive territory, with the S&P 500 finishing up 1.8 percent.
"There is a lot of hope out there that the worst is over," said Maris Ogg of Tower Bridge Advisors. "When you start to take the bankruptcy of First Republic off the table, and you start to take the bankruptcy of Credit Suisse off the table, it does calm people down."
The reversal in New York followed a rebound in European stocks as markets digested the ECB's move.
- 'Dovish hike' -
Investors had hoped the European Central Bank would reduce the amount of its rate hike, or even pause it over fears about the health of Credit Suisse and the wider banking system following the implosions of two US lenders.
But the central bank raised its main rates by half a percentage point, as it had previously pledged to do.
It did, however, drop a reference -- used in previous statements -- to the need to raise rates "significantly" going forward and ECB chief Christine Lagarde refused to commit to further rate hikes although she said more were needed.
Stock markets seesawed following the ECB's announcement.
European shares, which had risen earlier on relief that troubled banking giant Credit Suisse had secured a financial lifeline, initially fell but then quickly rebounded.
"Investors have viewed this as a 'dovish hike' from the ECB, as the bank indicates that it is shifting to an entirely data-dependent approach," said Matthew Ryan, head of market strategy at global financial services firm Ebury.
Dovish in monetary policy means favoring lower interest rates to maximise growth and employment, rather than pursuing a "hawkish" policy focused on raising interest rates to reduce inflation.
The half-percentage-point "hike sends a clear signal of confidence in the strength of the European banking sector," Ryan added.
Frankfurt closed up 1.6 percent and Paris advanced two percent. London rose 0.9 percent.
A day after hitting a record low, Credit Suisse rallied as it announced it would borrow up to $54 billion from Switzerland's central bank.
Its shares soared more than 30 percent at the open Thursday. They finished the day up just over 19 percent.
Other European banking giants including BNP Paribas and Commerzbank were also in the green, though Societe Generale and Deutsche Bank fell.
The ECB rate hike is the first by a major central bank since markets were rocked by banking crisis fears, testing the eurozone institution's resolve to implement another hefty increase.
There is also much debate over whether the US central bank will continue with its rate tightening campaign.
The collapse of California lender Silicon Valley Bank has been widely linked to the sharp rise in borrowing costs over the past year.
Some commentators expect US Federal Reserve officials to lift rates once more next week but possibly hold afterwards, while there is a growing belief it could even announce cuts before the end of the year.
But the First Republic package underscored the fast-changing nature of the situation.
"The market will be able to allow itself to think the worst of it is over" as far as the stock market effects go, said Briefing.com analyst Patrick O'Hare.
But O'Hare noted that economic growth prospects "have just gotten more challenging."
- Key figures around 1800 GMT -
New York - Dow: UP 1.2 percent at 32,246.55 (close)
New York - S&P 500: UP 1.8 percent at 3,960.28 (close)
New York - Nasdaq: UP 2.5 percent at 11,717.28 (close)
London - FTSE 100: UP 0.9 percent at 7,410.03 (close)
Frankfurt - DAX: UP 1.6 percent at 14,967.10 (close)
Paris - CAC 40: UP 2.0 percent at 7,025.72 (close)
EURO STOXX 50: UP 2.0 percent at 4,116.98 (close)
Tokyo - Nikkei 225: DOWN 0.8 percent at 27,010.61 (close)
Hong Kong - Hang Seng Index: DOWN 1.7 percent at 19,203.91 (close)
Shanghai - Composite: DOWN 1.1 percent at 3,226.89 (close)
Euro/dollar: UP at $1.0617 from $1.0577
Pound/dollar: UP at $1.2106 from $1.2057
Euro/pound: DOWN at 87.62 pence from 87.72 pence
Dollar/yen: UP at 133.69 yen from 133.42 yen
West Texas Intermediate: UP 1.1 percent at $68.35 per barrel
Brent North Sea crude: UP 1.4 percent at $74.70 per barrel