Early Morning Call: FTSE 100 and Europe indices bounce back, amid continued assessment of banking turmoil

Equity market overview

Equity markets in the Asia-Pacific region were mixed on Monday as banking sector concerns remained after Friday's sell offs in Deutsche Bank and First Republic Bank.

On Friday, US indices posted modest gains. European equity markets bounced back on Monday after recording losses on Friday. The Federal Deposit Insurance Corporation confirmed this morning the news broken by Bloomberg over the weekend that First Citizens Bank will acquire Silicon Valley Bank’s deposits and loans.

In China, industrial profits slumped 22.9% in the first two months of 2023 compared to the same period a year earlier, another indication that the factory sector in the country is struggling to recover from Covid-related disruptions. This latest data adds to a list of economic indicators that shows the uneven recovery China currently faces.

Factory output growth accelerated to 2.4% in January-February, retail sales swung back to growth in the sale period, but property investment is still on the decline despite government support.

Macroeconomic indicators

The market awaits a few major macroeconomic indicators in Germany this week, starting today at 09:00 with the Ifo business climate, expected to marginally fall to 91 in March, from 91.1 in February. It would be the first fall in five months.

Then on Wednesday, Gfk consumer confidence for the month of April is forecast to rise to -29 in April, after -30.5 the previous month. It will be followed on Thursday by consumer price index (CPI) for March. The market expects CPI growth to decelerate to 7.3% year-on-year (YoY), from 8.7% in April. The Harmonised CPI, the indicator favoured by the European Central Bank(ECB), is seen decelerating to 7.5% YoY.

Finally on Friday, retail sales are expected to bounce back month-on-month (MoM), up 0.5% in March after a 0.3% decline in February. But the year-on-year figure is expected to come at -5.6%.

Deutsche Bank share sell-off

Friday's Deutsche Bank share sell-off triggered reactions across the European banking sector. Barclays lost 4.2%, and French banks, Société Générale and BNP Paribas, shares fell over 6% and 5.3% respectively.

But some analysts consider the sell-off unjustified. If we compare Deutsche Bank to Credit Suisse, the former has posted profits for the last 10 quarters, and a net income of €5 billion in 2022. During the same period, Credit Suisse recorded a CHF7.3bn loss.

Also, Deutsche Bank has strong solvency and liquidity positions, while Credit Suisse has recently said it had to use its 'liquidity buffers'.

The currency market was also affected by Friday’s moment of panic. Currency traders sold the euro and British pound, favouring the US dollar, Japanese yen and Swiss franc.

Standard Chartered plans to sell its Jordanian business to Arab Jordan Investment Bank. The bank entered into an agreement with AJIB, subject to central bank approval.

Commodities

On the commodity market, oil prices have recovered most of Friday’s losses. Last week, the Baker Hughes total rig count rose by four to 758, entirely due to the number of oil rigs in operation, also up by four to 593.

Traders will also be attentive to the cocoa price in New York, which has set reached a new two-year high, and orange juice, which jumped more than 5% during Friday’s session.