Global Markets Rebound After US Lenders Rescue First Republic Bank

Global markets surged after US lenders provided a lifeline to First Republic Bank, supporting stocks and allaying concerns about the wider banking sector. Credit Suisse shares gained ground after it secured a $54 billion credit line from Switzerland's central bank.

European stocks recovered some of their earlier losses, as oil prices surged from their lowest level since last year. A hike by the European Central Bank also provided investors with hope that inflation could be contained.

European shares rise

After a week of crippling bank runs, stock price declines, emergency bailouts and an eye-watering European Central Bank interest rate hike, global markets returned to calm on Friday. Reactions across Europe and Asia were positive when news spread that large US banks had invested $30 billion into First Republic Bank FRC.N, alleviating fears the US banking crisis may be worse than first believed.

After Credit Suisse CSGN.S' rescue bid, the Stoxx 600 Index rose 1.2%, with shares of the lender recovering some of their steep loss from Wednesday that had caused concern about its financial health. Nonetheless, the rally was modest and the index remains around 16% below its end-February highs.

One factor contributing to the renewed confidence in the market is that European companies have started reporting better earnings this year, which helps ease concerns about a recession. Industrials and energy firms have reported impressive profits, while banks too have experienced positive outcomes.

Despite positive earnings, investors remain concerned about recession risks as central banks raise interest rates to contain inflation - something many businesses worry about as it can add costs. Fortunately, headline inflation is slowing down and this could give the ECB some leeway to stop raising rates.

Companies have begun to increase capital expenditure (capex) for new projects, suggesting that the European economy may continue to experience growth.

Investors have their sights set on the Bank of England and Federal Reserve, who both seem likely to raise interest rates next week. With recent bank rescues in the US and UK, some have pondered if these rate increases will be scaled back or even cancelled altogether.

One way to protect against this risk is investing in Europe equities exchange-traded funds (ETFs). These ETFs provide broad exposure to stocks from European countries or can be tailored towards certain industries or sectors.

Europe Equities ETFs (ETFs) are an ideal way to invest in the region. They provide investors with exposure to a wide range of European companies, such as industrials and energy firms.

Asian shares rebound

After a rocky week, global markets found some stability Friday when US lenders saved First Republic Bank, allapping fears about the current banking crisis. JPMorgan Chase, Bank of America, Wells Fargo and other major banks contributed $30 billion into the troubled lender to calm customers' worries that they might take out their deposits.

The MSCI Asia Pacific Financial Index gained as much as 1.1% on Monday, paring its weekly loss to 2.7%. Japanese megabanks such as Mitsubishi UFJ Financial Group and Sumitomo Mitsui Financial Group led the gainers with gains of up to 2.3%.

Asia stocks rallied on Thursday following fears the credit crisis would spread beyond Silicon Valley Bank and Signature Bank to other US banks. Tech shares also experienced a rally, regaining some of their earlier losses thanks to an uptick in the Nasdaq index.

Oil prices were higher on Friday, with futures up a fraction and reversing some of Thursday's decline. Japan's Nikkei 225 index rose 0.62% and Sydney stock exchange rose 0.34%; however, both still had losses for six consecutive weeks.

Investors in Asia welcomed the news that First Republic would receive a $30 billion lifeline from an alliance of American lenders. They predicted this would allay customers' fears that their funds would be taken advantage of following last week's collapse of Silicon Valley Bank and Signature Bank, sparking fears of full-blown banking crisis in America.

Analysts warn against complacency, however. The recent failures of Silicon Valley Bank and Signature Bank have created concern about potential moral hazard situations where banks would need to guarantee their deposits.

This risky behavior has already prompted the Federal Reserve to pledge that they will purchase as many Treasury securities as necessary in an effort to avert further market turmoil. Critics fear this could create a climate where banks feel empowered to take on too much risk, potentially leading to another recession.

Though the US lenders' rescue effort has instilled optimism in the market, it remains uncertain how long it will be successful and if it will solve all banking issues. Investors will continue to monitor economic indicators for signs of recovery and remain cautious until further notice.

U.S. stocks rise

Global markets rose after a group of US lenders invested $30 billion into First Republic Bank to reassure investors that the country's financial system remains resilient. Arranged by top power brokers from the Treasury, Federal Reserve and banks including JPMorgan Chase & Co., this was another lifeline for banks after two other mid-size US lenders collapsed this week amid growing worries over an escalating global financial crisis.

Investors had feared the recent turmoil would spread to smaller and regional lenders like First Republic, which has been struggling to attract depositors since Silicon Valley Bank's failure last week. As a specialist in private banking and wealth management, First Republic has many uninsured deposits which makes it more vulnerable to quick withdrawals from concerned depositors.

Much like Silicon Valley Bank, which experienced an enormous exodus of customers, First Republic's stock price has plummeted and its credit rating has been downgraded. In fact, its shares are down 76% this month, wiping out nearly $16 billion of their value.

On Thursday, however, 11 of the biggest US banks agreed to deposit a combined $30 billion into First Republic Bank in an effort to stop the run on smaller regional firms and the financial turmoil plaguing America. JPMorgan Chase, Citigroup, Bank of America, Wells Fargo and Goldman Sachs will each contribute $5 billion; Morgan Stanley will add another $2.5 billion; BNY Mellon PNC Bank State Street Truist and U.S.Bank each contributed $1 billion according to a statement.

US regulators expressed satisfaction with the rescue plan. But their remarks raised doubts about whether or not the US financial system can withstand further tightening policies from the Federal Reserve, which are expected to take place next week after Europe's Central Bank increased interest rates to a record high.

Major banks' rescue of First Republic, combined with Credit Suisse's bailout earlier in the day, sent treasuries and other assets higher. While this provided some temporary comfort to global stock markets, it did little to address long-term concerns over a banking crisis.

Oil prices rise

On Thursday, a $30 billion bailout by major banks ignited a global market rebound that lifted shares of oil and gas companies. Although WTI oil price rose slightly, it remained far below its highest level since Russia's invasion of Ukraine last year, sending shockwaves through global energy markets.

Oil prices can be affected by a number of factors, such as supply and demand, production costs, and the size of oil stockpiles in storage. For consumers, rising oil prices mean higher gas prices; they may also indirectly result in an increase in interest rates on mortgages or other loans.

The major cause of rising oil prices is demand, particularly from China which accounts for about one-third of global consumption. That demand is expected to keep on increasing and it's also why Saudi Arabia and OPEC are sticking with their production cut agreement until the end of this year.

Oil companies have largely shied away from drilling more wells due to investor pressure. According to a recent survey by the Dallas Fed, 60% of executives indicated they did not plan to increase production at prices above $120 a barrel.

Instead, they're focusing on cash generation, dividend payments and buybacks that help raise share prices and boost shareholder value. This is a much more direct path for companies to increase profit than increasing output - which could have the greatest effect on prices.

PDP securitization, or proved developed producing, has emerged as the best way to offer oil and gas producers a more advantageous deal on their capital. Introduced in 2019, this technology allows operators to convert their production into assets that can be collateralized by notes issued to investors.