The FTSE 100 and European stocks finished lower on Friday as the support packages offered to First Republic Bank and Credit Suisse only restored calm for a moment.
The FTSE 100 (^FTSE) lost 1% to close at 7,337, while the CAC 40 (^FCHI) in Paris lost 1.47% to 6,922 points. In Germany, the DAX (^GDAXI) fell 1.35% to 14,765. US stocks were also lower in afternoon trading.
The British economy is expected to have a mild rebound next year, according to the Organisation for Economic Co-operation and Development (OECD), with output rising by 0.9% after a year-on-year decline in 2023.
The UK will be the only economy in the G20 apart from Russia to shrink this year as high inflation, the energy crisis and low productivity hinder its recovery.
Markets are also digesting news that eurozone inflation eased slightly in February while underlying price growth picked up, according to the latest official figures.
— EU_Eurostat (@EU_Eurostat) March 17, 2023
The EU’s statistics agency Eurostat confirmed preliminary data released earlier this month, saying consumer price inflation in the 20 countries sharing the euro slipped to 8.5% last month from 8.6% in January, as a big drop in energy costs was mostly offset by a price surge in nearly all other areas.
US and Asia
US stocks were lower in Friday's trading session as banks were under pressure while tech stocks spent some time in positive territory after a huge market rally Thursday followed news a consortium of 11 big US banks had banded together to deposit $30bn into First Republic (FRC) in a bid to stabilise the banking system.
JPMorgan Chase (JPM), Bank of America (BAC), Citigroup (C) and Wells Fargo (WFC) will each deposit $5bn into First Republic, a California-based lender which saw shares sink nearly 70% over the last week.
First Republic has been caught up in the fallout from the collapse of Silicon Valley Bank (SIVB), which collapsed last week.
Concerns have been raised about withdrawals at the bank, which caters to wealthy individuals and had $271bn of assets under management as of December.
Federal insurance only protects individual balances of up to $250,000 and there are worries that wealthier clients may be withdrawing their funds.
In the US, SVB Financial Group has filed for a court-supervised reorganisation under Chapter 11 bankruptcy protection to seek buyers for its assets, a week after its former division Silicon Valley Bank was taken over by US regulators.
Also, US investors in Credit Suisse (CS) have hit the beleaguered Swiss bank with legal action, claiming that it overstated its prospects before this week’s shares crash.
"The actions of America's largest banks reflect their confidence in the country’s banking system. Together, we are deploying our financial strength and liquidity into the larger system, where it is needed the most," the banks said in a joint statement on Thursday.
In Asia, Tokyo’s Nikkei 225 (^N225) rose 1.20% to finish at 27,333 points, while the Hang Seng (^HSI) in Hong Kong gained 1.90% to 19,567. The Shanghai Composite (000001.SS) also gained ground, rising 0.73% to 3,250 points.
Back in London, UK bank share prices were up in early exchanges following the rescue deal but found themselves back in the red as the banking sector is still not out of the woods.
Stuart Cole, head macro economist at Equiti Capital, said: "We're not out of the woods yet by any means.
"The rally we saw in equities yesterday was more of a relief rather than any suggestion that we've turned a corner in any material sense."
Richard Hunter, head of markets at Interactive Investor, said: “Investors regained some poise after the tribulations of recent days, boosted by further actions to stem the potential of bank sector contagion.”
Stephen Innes, managing partner at SPI Asset Management, said: "It turned into a relatively normal day here in Asia stocks… The market remains cautious; traders do not want to get overexcited, especially with investors still focusing on what can go wrong instead of what could go right.
"Granted, there is still a considerable element of headline risk, especially over the weekend when traders can’t react, which could again upset the proverbial apple cart on Monday morning open. Not to mention, the uncertainty around the Fed policy reaction function is keeping rates volatility elevated."
Victoria Scholar, head of investment at the Interactive Investor, said: "European markets have opened higher with oil giants like Shell and BP at the top of the FTSE 100 thanks to strengthening oil prices.
The pound (GBPUSD=X) was trading modestly higher at around $1.2162, reaping in the benefits of a weaker dollar.
Meanwhile, Brent crude (BZ=F) lost ground and was trading at around $73/barrel, with oil prices headed for their biggest weekly falls since December as a banking crisis rocked global financial and oil markets.
Looking at market events, next Wednesday, it will be the US Federal Reserve's turn to decide on ratesm followed by the Bank of England the following day.
"Like the ECB, economists believe the Fed will adopt a 'dual track' policy approach, distinguishing monetary policy from macro-prudential policy. US central bankers are continuing with their fight against inflation with a 25-basis point hike, which would bring the Fed's benchmark rate to a 4.75%-5% range," IG said.
Watch: Big banks save California-based bank First Republic with $30bn bailout