Stocks soar after ECB decision, First Republic takeover talks

U.S. stocks were rallying in early afternoon trade as reports swirled troubled bank First Republic (FRC) is in talks with multiple larger banks on a takeover, which could potentially forestall what investors feared would be the fourth U.S. bank to fail in less than two weeks.

Near 1:00 p.m. ET, stocks were near session highs with the S&P 500 (^GSPC) up 1.5%, the Dow Jones Industrial Average (^DJI) was higher by 1%, while the tech-heavy Nasdaq Composite (^IXIC) led gains, rising 2.1%.

Markets opened lower this morning after the European Central Bank surprised investors with a 0.50% interest rate hike, a move suggesting central banks will remain focused on pushing down inflation the ECB called “too high” in its statement this morning. The Federal Reserve is set to announce its latest policy decision next week.

Stocks accelerated to the upside in late-morning trade, however, following a report from the Wall Street Journal which suggested buyers have emerged for troubled regional bank First Republic. The Journal reports JPMorgan (JPM) is working with Citi (C), Wells Fargo (WFC), and Bank of America (BAC) to inject capital into First Republic.

Shares of First Republic were up as much as 10% near 1:00 p.m. ET after the stock had dropped as much as 23% earlier in the session.

Futures had been mixed early Thursday ahead of the ECB’s announcement. Wednesday’s turmoil in Credit Suisse and a late-night intervention from the Swiss National Bank pushed investors to expect a more modest 0.25% increase from the ECB as central banks weigh financial stability concerns against inflation that remains elevated.

“Inflation is projected to remain too high for too long,” the ECB said in its statement. “Therefore, the Governing Council today decided to increase the three key ECB interest rates by 50 basis points, in line with its determination to ensure the timely return of inflation to the 2% medium-term target.”

“The Governing Council is monitoring current market tensions closely and stands ready to respond as necessary to preserve price stability and financial stability in the euro area,” the statement added. “The euro area banking sector is resilient, with strong capital and liquidity positions.”

A view shows a signage of Swiss bank Credit Suisse in front of an office building in Zurich, Switzerland March 16, 2023. REUTERS/Denis Balibouse

A view shows a signage of Swiss bank Credit Suisse in front of an office building in Zurich, Switzerland March 16, 2023. REUTERS/Denis Balibouse

Late Wednesday, Credit Suisse announced it would borrow up to 50 billion Swiss francs, or about $54 billion, from the SNB.

Shares of Credit Suisse (CS) fell as much as 30% on Wednesday after its largest investor, the Saudi National Bank, said it would not increase its stake in the trouble bank, citing regulatory challenges to taking its stake north of 10%.

Credit Suisse shares trading in New York were up about 5% on Thursday.

The ECB’s decision also comes just days before the Federal Reserve’s next policy announcement, at which the central bank is expected to raise rates by 0.25% for the second-straight meeting.

Markets were putting roughly 75% odds on the Fed raising rates by 0.25% at its policy meeting next week on Thursday morning, down from expectations for a 50-basis-point rate hike before this past week’s banking system turmoil.

“FOMC members likely have not yet decided what to do next week, given the volatility of markets,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics, in a note on Thursday. “But yesterday’s meltdown in Credit Suisse stock, and—more importantly—the loss of liquidity in the Treasury market, coming on top of the SVB, Silvergate, and Signature failures, makes it more likely that they pass on raising rates.

“It is more important, in our view, not to take risks with the stability of the system than to reassert your determination to fight inflation,” Shepherdson added.

In U.S. economic data, the latest weekly report on initial jobless claims showed a drop in first-time filings for unemployment insurance to 192,000 down from 212,000 the prior week and suggesting continued strength in the U.S. labor market.

This report serves as one of the last pieces of notable economic data ahead of the Federal Reserve’s two-day policy meeting, which kicks off next Tuesday and will see the central bank announce its latest policy decision Wednesday afternoon.

Investors will also be paying close attention to testimony from Treasury Secretary Janet Yellen, who will speak before the Senate beginning at 10 a.m. ET. In prepared remarks released ahead of Yellen’s appearance, the Treasury Secretary said the U.S. banking system remains “sound.”

Click here for the latest stock market news and in-depth analysis, including events that move stocks

Read the latest financial and business news from Yahoo Finance

Source: https://finance.yahoo.com/news/stock-market-news-today-march-16-2023-125400814.html