(News Bulletin 247) – The CAC 40 ended sharply higher on Tuesday, driven by banks and Axa. The market turns its attention to the Federal Reserve as it begins its two-day meeting.
The Paris Stock Exchange continues to redo some of its losses from last week, where it had fallen by more than 4%. After a first rebound on Monday of 1.27%, the CAC 40 experienced a comparable increase on Tuesday with an increase of 1.42% at the close, to 7,112.91 points.
The market is reassured by certain signs of easing tensions in the banking sector, particularly in the United States. Treasury Secretary Janet Yellen, quoted by AFP, assured that the situation was “stabilizing”, particularly in terms of cash withdrawals from regional banks.
Even First Republic Bank, a bank that had fallen on Wall Street on Monday as the entire sector recovered, is regaining color on Wall Street, taking 41%. PacWest Bancorp takes 14.9%.
In Paris, the financial sector pulled the CAC 40, Societe Generale taking 4.3%, BNP Paribas advancing 4.2%, as did Axa.
The ECB and the EBA reassured
The banks are experiencing a recovery movement fueled by an intervention by the European authorities following the announcement of the takeover of Credit Suisse by UBS.
Explanation: the acquisition of Credit Suisse by UBS includes the total cancellation of 16 billion Swiss francs of a certain type of debt (“AT1” for “additional tier one”) from Credit Suisse, a decision taken by Finma, the Swiss watchdog of the financial markets.
However, the shareholders of Credit Suisse will receive the equivalent of 40% of the value of their shares (at the close of Friday) in the form of UBS securities. Which, to sum up, means that shareholders are better treated than certain creditors, an idea that undermines the basic principle that creditors are paid first, because they are supposed to bear less risk.
The European Banking Authority and the European Central Bank in a joint statement addressed an implicit tackle to the Swiss authorities on Monday, to recall that equity instruments must be the first to absorb losses and “only after” these losses can be attributed to debts. AT1.
While the market for AT1 debt securities, to which banks have had recourse since the 2008 crisis, seized up, the declarations of the European authorities reassured, also restoring confidence in the banking sector. “Thus reassured, AT1s recovered somewhat during the session and we saw a more general rise in banking stocks,” notes Deutsche Bank.
The Fed faces a dilemma
Investors will now turn their attention to the Federal Reserve, which begins its two-day meeting on Tuesday. The American central bank finds itself having to play the balancing act between the need to preserve the stability of the financial system and that of curbing the persistent rise in prices in the United States.
“The question” will go beyond “whether or not it will increase by 25 basis points (0.25 points)” its key rates, judge Craig Erlam of Oanda. “The message will be crucial and could be a major driving force in the markets barring further upheaval in the banking sector,” he continued.
As for stocks (apart from the financial sector), the renewed appetite for risk has benefited certain cyclical stocks such as Alstom (+4%) and Renault (+3.7%).
Excluding the CAC 40, Crossject fell by more than 11.6% after publishing degraded 2022 results.
Sopra Steria fell 0.5% after announcing the launch of a friendly takeover bid to take over Dutch company Ordina and strengthen its position in Benelux.
On the other markets, the euro recovered 0.45% against the dollar at 1.0772 dollars. Oil prices are rising as Russia has announced that it wants to extend the reduction in its production by 500,000 barrels per day until the end of June. The May contract on Brent from the North Sea rose 1.2% to 74.71 dollars a barrel while that of the same term on WTI rose 1.3% to 68.50 dollars a barrel.
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