Early Morning Call: European indices open higher after First Republic Bank rescue

US markets

US markets posted solid gains yesterday, after major US banks pledged to shore up First Republic Bank. Tech stocks benefitted the most, with the Nasdaq composite rising 2.5%.

Hours after Credit Suisse's announcement of a Swiss National Bank (SNB) emergency lifeline to up to CHF50 billion, large US banks injected $30 billion in deposits into First Republic Bank yesterday afternoon. Once confirmed, First Republic Bank reversed a 36% drop, and ended the session up 10. But expect the stock to drop at the open on Friday afternoon.

Shares fell 18% in after-market trading, after the bank said it would suspend its dividend. Is the banking sector facing a liquidity crisis? For the time being, policymakers are saying no, emphasising that the current turmoil is different to the 2008 financial crisis. That said, data yesterday showed the US banks sought record amounts of emergency liquidity from the Federal Reserve (Fed) in recent days. Banks have borrowed $164.8bn from Fed facilities in the week to 15 March.

Cental banks

Yesterday, the European Central Bank (ECB) decided to stick with its own aggressive rate hike, raising its main refinancing rate by 50-basis points (bp) to 3.5%. Christine Lagarde couldn't say it more clearly: the ECB is not waning on its commitment to fighting inflation.

Next Wednesday, it will be the US Federal Reserve's turn to decide on rates. Like the ECB, economists believe the Fed will adopt a 'dual track' policy approach, distinguishing monetary policy from macro-prudential policy. US central bankers are continuing with their fight against inflation with a 25-basis point hike, which would bring the Fed's benchmark rate to a 4.75%-5% range.

Expectations of a 50-basis point increase are now gone. A week ago, Fed chair, Jerome Powell signalled he was ready to hike faster if data supported the need. Fed funds futures now show a probability of a pause of about 14%.

This afternoon at 12.30pm, industrial production is expected to rise by 0.2% in February month-on-month (MoM). A bit later at 2pm, Michigan consumer sentiment is forecast to remain unchanged at 67 in March.

Equities

Elsewhere on the equity market, FedEx raised its fiscal 2023 profit forecast yesterday evening after the US closing bell, citing progress on its cost-cutting plan. The news sent shares up more that 11% in extended trading. Adjusted earnings came in at $3.41 per share in the third quarter (Q3). That's down $1.18 on Q3 a year ago, 65 cents higher than analysts' average estimate. Revenue fell 6% to $22.2 billion, missing Wall Street forecasts.

Despite weak market conditions, FedEx now forecasts adjusted profit of $14.60 to $15.20 per share for the full year, up from its previous projection of $13 to $14 and well above analysts' average estimate of $13.56.

Commodities

On the commodity market, oil prices are rising this morning, but are set to post their largest weekly loss this year.

Oil traders await the Baker Hughes oil rig count. Last week, the survey showed a drop in total rig counts to 746 from 749 the previous week. The number of oil rigs in operation fell by two to 590.

Gold remains near recent highs. The precious metal is set to post a third straight week of gains and is poised for its best week since mid-November.