European equities advance as nerves subside over banks

European equities advanced on Tuesday as investors turned cautiously optimistic that the worst of the recent banking crisis was over.

The Stoxx Europe 600 Banks index, which includes the region’s biggest lenders, rose 1.5 per cent. Commerzbank led gainers, up 2.6 per cent.

The moves bolstered broader share indices, with the benchmark Stoxx 600 up 0.4 per cent and Germany’s Dax up 0.6 per cent.

US bank stocks finished higher overnight in New York as investors welcomed news that US regulators could enact more policies to support fragile confidence in banks. The KBW Nasdaq Bank index rose 2.5 per cent, with Citigroup up 3.9 per cent. The advances in US bank shares came as regulators confirmed First Citizens Bank would purchase part of the collapsed Silicon Valley Bank.

Futures for the blue-chip S&P 500 and the tech-heavy Nasdaq rose 0.3 per cent and 0.2 per cent respectively.

However, shares in Deutsche Bank gave up early gains to trade flat. The German lender was still recovering after last week, when its shares lost 8.5 per cent and its five-year credit default swaps reached 200 basis points as investors wagered which bank might be next to encounter stress after the failure of Credit Suisse. Deutsche’s CDS eased to just over 188bp on Monday, according to Markit prices quoted by Refinitiv.

Analysts stressed that bank distress on both sides of the Atlantic had different roots.

“Credit Suisse and Deutsche Bank have been on radar in terms of distress for many years,” said Francesco Pesole, FX strategist at ING. “Whereas in the US it is regional banks and the problems are more regulatory and structural.”

Later on Tuesday, the US Congress will hear evidence on the collapse of SVB, which may provide market watchers with additional context on the bank’s failure.

Michael Barr, Fed board vice-chair for supervision, is expected to say that SVB was a “textbook case of mismanagement”, but that regulators “are prepared to use all of our tools for any size institution, as needed, to keep the system safe and sound”.

Analysts at SEB Research said the main question for regulators was to define “in which situations and for which institutions such exemptions could become relevant again and in which cases the authorities would allow depositors’ money to be lost”.

In Asia, the Hang Seng index rose 1 per cent after Monday data showed that Chinese industrial profits declined by 22.9 per cent year on year.

Government debt weakened, with yields on two-year US Treasuries rising 0.06 percentage points to more than 4 per cent, while 10-year notes rose 0.03 per cent to 3.55 per cent.

In currency markets, the dollar index — which measures the greenback against a basket of six peer currencies fell by 0.3 per cent. The euro and sterling rose 0.1 and 0.3 per cent against the dollar respectively.

Brent crude fell 0.1 per cent to $78.23 per barrel, while WTI, the US equivalent, was up 0.3 per cent at $73.05 per barrel.