Marketmind: Calm returns: Investors switch to bank fundamentals

© Reuters. FILE PHOTO: The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, February 8, 2023. REUTERS/Staff

A look at the day ahead in European and global markets from Anshuman Daga

Turbulence in global markets is gradually giving way to stability.

A day after regional U.S. lender First Citizens BancShares moved to scoop up the assets of failed Silicon Valley Bank, brave investors can probably begin to ask, “Is the worst over?”

A strong show of confidence is coming from U.S. authorities as bank regulators say the system is sound but rules need review.

A recover in U.S. markets, especially in beaten-down bank shares, lifted Asian stocks on Monday while the safe-haven dollar declined. Australian stocks outperformed, boosted by M&A activity.

(GRAPHIC: US stocks regain losses since Silicon Valley Bank collapse-

The relief rally in Asian equities could extend to Europe, where banking shares rose on Monday, paring last week’s sharp declines.

A state-orchestrated rescue of Credit Suisse by rival UBS and turmoil among regional U.S. banks have fuelled concerns for the sector.

But analysts at asset manager Amundi say recession fears are the main culprit and European banks are not lumbered with weak assets that would pose challenges to capital or liquidity levels.

While the analysts expect a continuation of declining credit growth which is consistent with monetary tightening, they don’t expect any credit crunch.

“Most European banks have plentiful capital and liquidity to support the real economy: We expect them to remain open for business and to continue extending loans to creditworthy customers.”

The European Central Bank’s board member Isabel Schnabel said on Monday the ECB could take a leaf from the Bank of England’s book as it looks for new ways of managing liquidity in the banking sector and steering short-term interest rates in the market.

In Germany, millions of people were disrupted on Monday as airports and bus and train stations across the country came to a standstill during one of the largest walkouts in decades in Europe’s biggest economy as soaring inflation stoke wage demands.

Meanwhile, a U.S. regulator sued Binance, the world’s biggest crypto exchange, and its CEO and founder Changpeng Zhao for what the regulator alleged were an “illegal” exchange and a “sham” compliance programme. Zhao called the complaint “unexpected and disappointing.”

Key developments that could influence markets on Tuesday:

Speakers: Federal Reserve Vice Chair for Supervision Michael Barr testifies on “Bank Oversight”

European speakers: ECB President Christine Lagarde gives a speech at an opening ceremony of BIS Innovation Hub Eurosystem Centre in Frankfurt; Andrew Bailey, BoE governor Banking at Bank of England participates in a Treasury Select Committee hearing on Silicon Valley Bank