European Stock Markets Show Signs of Stability After Banking Turmoil
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European Stock Markets Show Signs of Stability After Banking Turmoil

The recent upheaval in the global banking sector, which resulted in the collapse of a few regional US banks and the Credit Suisse bailout, has sent shockwaves throughout the world. However, the European banking sector seems to have weathered the storm and is much better prepared than it was during the 2008 collapse. This has led to increased confidence in European stock markets, and they are expected to open higher on Tuesday. The French and Italian business confidence data for March are due to be released, which will further strengthen this sentiment.

European Banking Shares Rose on Monday, Parrying Last Week’s Sharp Declines

European banking shares experienced sharp declines last week. However, officials at the European Central Bank have pointed out that the European banking sector is well-prepared for any challenges that come its way. ECB Governing Council member Gediminas Simkus said that the jurisdiction of banks in the euro system is different and that high capital buffers, high liquidity, and growing profitability from rising interest rates are all contributing factors.

Inflation Data Due Friday: Annual CPI Gains Slowed Steeply in February

The ECB raised interest rates by 50 basis points earlier this month, indicating its confidence in the European banking system. However, inflation data due on Friday is set to show that annual CPI gains slowed steeply in February. This may necessitate continued vigilance by the ECB in its ongoing battle against soaring prices.

Oil Edged Lower, While Gold Futures Rose

Oil prices have recently experienced a rally, but they have edged lower again as their momentum stalls ahead of the release of the latest U.S. crude stockpiles data. Meanwhile, gold futures have risen, indicating that investors are seeking safe havens. The U.S. dollar has drifted lower in early European trade as confidence in the global banking sector returns.

Confidence in Global Banking Sector Weakens Demand for Safe Haven Dollar

The U.S. dollar has drifted lower in early European trade Tuesday as confidence in the global banking sector returns. The S&P 500 banks index rose by 3.1% on Monday, and First Citizens BancShares' acquisition of Silicon Valley Bank's deposits and loans further contributed to the positive sentiment. Reports also suggest that U.S. authorities are considering adding support for banks. As a result, the demand for the dollar, which is usually considered a safe haven in times of stress, has weakened.

Turbulence in Banking Sector Affects Federal Reserve's Likely Interest-Rate Hiking Path

The turbulence in the banking sector has impacted the market's expectations regarding the Federal Reserve's likely interest-rate hiking path. The dollar index had reached a three-month high of 105.88 on March 8 before dropping to 101.91 last week as risk sentiment fluctuated with the differing banking headlines. Markets have turned doubtful that the Fed will be able to tighten policy any further and have speculated on an early start to the easing cycle. Fed Funds futures currently price in only a 30% chance of a rate hike in May while full pricing in a 25bp cut in July and a total of 80bp of easing by year-end.

European Central Bank Officials Emphasize the Need to Tackle Inflation

EUR/USD rose 0.2% to 1.0817, and European Central Bank officials are keen to emphasize not only the continued need to tackle inflation but also the underlying strength of the region's banks. Governing Council member Mário Centeno said that the European Central Bank must consider recent financial-market stress when making decisions on interest rates. However, their primary focus right now is to control inflation and bring it down to 2%.

French and German Business Confidence Remains Healthy Despite Turmoil in Banking Sector

Data released Tuesday showed that French business confidence remained healthy in March despite the recent turmoil in the banking sector. This follows from German business morale unexpectedly rising in March, indicating that the impact of the banking sector's turbulence on business confidence may not be as significant as initially expected.