Efforts by regulators and financial executives to assuage fears of contagion sparked by the collapse of Silicon Valley Bank (SVB) bolstered sentiment on Wednesday.
Nonetheless, in a week in which global bank stocks have plunged – the regional bank index of the S&P 500 has fallen by 18%—the environment remains fragile.
The European Central Bank remains leaning towards an interest rate hike of half a percentage point on Thursday, despite turbulence in the banking sector given high inflation, a source close to its Governing Council told Reuters.
The reminder that major central banks remain bullish on rates boosted government bond yields, while attention focused on the budget to be presented later by British Finance Minister Jeremy Hunt.
“Many of the ingredients are there for confidence to recover, but only time will tell if this lasts,” said Antoine Bouvet of ING (AS:INGA).
European stock markets were down 0.9 percent but remained above the three-month lows hit on Monday when panic gripped global markets following SVB’s bankruptcy last week.
Asian stocks rose, in line with Tuesday’s rally on Wall Street after U.S. inflation data delivered no nasty surprises, bolstering hopes that the Federal Reserve will opt for a lower rate hike when it meets next week.
MSCI’s broadest index of Asia-Pacific shares excluding Japan gained 0.9 percent, after losing 1.7 percent on Tuesday. The Nikkei Japanese closed flat, while a measure of Japanese banks, which has fallen 8% this week, climbed more than 3%.
U.S. stock futures were mostly trading negative, suggesting a sluggish start for Wall Street.
Short-term bond yields, which typically move in step with rate expectations, were trading unevenly on the day.
Germany’s two-year note yield fell 3 basis points to 2.89 percent, after briefly falling to 2.43 percent on Tuesday. The yield on its U.S. Treasury peers improved 10 basis points to 4.33 percent, a far cry from Tuesday’s six-month low of 3.83 percent.
In the foreign exchange markets, the Dollar Index, which compares the greenback to a basket of six major currencies, was flat at $103.74, while the euro was also flat at $1.0735.
The prices of the raw They gained 1.6%, rebounding from three-month lows hit the day before, due to OPEC’s improved outlook on Chinese demand.