European stocks and Wall Street futures rose on Friday as US regional banks recovered some of their recent losses in premarket trading as investors looked ahead to the release of US jobs data as proof of health of the American economy.
The regional Stoxx Europe 600 gained 0.3% in morning trade after another bout of selling rocked US regional banks overnight on Wall Street and extended the worst sector panic since 2008.
In the US, contracts tracking Wall Street’s benchmark S&P 500 rose 0.5% and those tracking the tech-heavy Nasdaq 100 rose 0.6% ahead of the New York open. Shares of PacWest and First Horizon tumbled in the previous session but recovered some of those losses on Friday, rising 12.6% and 6.5% respectively in pre-market trading.
London’s FTSE 100 gained 0.4%, while sterling strengthened 0.3% against the dollar to $1.26, the most since May 2022.
Germany’s Dax also rose 0.7% after data showed German factory orders fell 10.7% in March compared with the previous month, a much larger decline than economists expected, raising concerns about the a sharp slowdown in Europe’s largest economy.
Thursday the European Central Bank increase in interest rates by a quarter of a percentage point, slowing from previous increases, but warns that the fight against inflation is not yet won. The ECB’s key deposit rate jumped from minus 0.5% to 3.25% in 11 months, its fastest tightening cycle ever.
Some analysts believe rates are close to their all time highs. “For all the resilience of the euro area banking sector, the US experience calls for caution,” said Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management. “We would expect the ECB to stop raising rates by the summer.”
Traders are awaiting US jobs data that is expected to show 180,000 jobs added in April, down from 236,000 jobs added in March. The unemployment rate is forecast to have risen to 3.6% in March from a 50-year low of 3.5%.
“One downside [jobs] number would mean we are already in a recession, and neither is the [Federal Reserve] nor is the market ready for this news,” said Mike Zigmont, head of trading at Harvest Volatility Management. “I don’t think a strong number will stir up too much upside, but it will certainly reduce bears.”
Like the ECB, the Fed earlier this week opted for a quarter-percentage point rate hike, its tenth consecutive hike in just over a year. Unlike the ECB, however, the US central bank has signaled that it may soon suspend its monetary tightening campaign.
The Fed continued to hike rates despite the collapse of Silicon Valley Bank, Signature and First Republic since March, and in the broader context Panic in the banking sector.
“Markets are trapped in an unfortunate spiral, and when they’re in this kind of mode it usually means that an additional policy response of some sort is needed,” said Michael Metcalfe, head of macro strategy at State Street Global Markets. On the sell-off of several regional banks this week, Metcalfe said, “My guess is that this is speculative activity.”
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