European stocks stabilise after three-day rout, banks still weak

By Sruthi Shankar

(Reuters) -Rate-sensitive real estate stocks supported the wider European benchmark on Tuesday after a three-day sell-off in the wake of Silicon Valley Bank’s (SVB) collapse that sent chills through the banking sector globally.

The pan-European index edged up 0.1% after plunging 2.4% a day earlier in its worst sell-off of the year.

Real estate stocks climbed 1.6% as investors bought into the sectors that tend to benefit from lower interest rates. Utilities jumped 1.1%.

European bond yields fell further as investors bet on reduced policy tightening from the European Central Bank (ECB). SVB’s collapse is widely considered to be due to high U.S. interest rates.

Traders are now pricing in a 25 basis-points hike as the most likely outcome at the ECB’s policy meeting on Thursday, half the size of the increase estimated with near certainty last week, mirroring the shift in bets of a Federal Reserve rate hike next week.

The next step for the Fed could be guided by U.S. inflation data. Consumer prices cooled slightly in February, data due at 8:30 a.m. ET is expected to show.

“It (CPI) is a secondary factor this week because of what happened with the banking sector,” said Andrew Bell, chief executive officer of Witan Investment Trust.

“If we get a slightly poorer figure, I think people will then hope for an outright pause. But if we get a better figure, people will say the Fed will probably do a quarter.”

The European banks index fell 0.8% after slumping 5.8% on Monday in its worst single-day sell-off in more than a year as U.S. regulators’ moves to guarantee SVB’s deposits failed to reassure investors that other banks remain safe.

“The red across for European Banks should, in theory, be very limited given the peculiarity of the SVB financial business, the different regulatory framework and the solid liquidity ratios of the big Euro banks,” Luca Fina, head of equity at Generali (BIT:) Insurance Asset Management, wrote in a note.

“However, the recent events remind investors how complex the sector is, further eroding their confidence in it.”

Shares of Credit Suisse fell 4.4% after the embattled Swiss lender said customer “outflows stabilized to much lower levels but had not yet reversed” in its 2022 annual report. The stock hit a record low on Monday, swept up in the wider banking sector sell-off.

HSBC slipped 1.4% in its fourth consecutive day of losses. The UK bank bought the UK arm of SVB on Monday, rescuing a key lender for technology start-ups in Britain.

Italy’s Assicurazioni Generali gained 2.6% after the insurer surprised investors by hiking its dividend payout after posting its best operating profit ever in 2022.