Europe midday: Stocks push higher as banks recover; rate decisions eyed

European shares had pushed further into the black by midday on Tuesday, rebounding from the turmoil of recent days after the rescue of Credit Suisse, with investors now focused on how the US and UK central banks will respond with interest rate decisions this week.

The Stoxx 600 benchmark index was up 1.4%, while France’s CAC 40 and Germany’s Dax were 1.5% and 1.6% firmer, respectively. UBS shares were up nearly 5% in response to its $3.2bn takeover of its famous Swiss rival.

"With the Federal Reserve rate meeting due to start later today, markets have become increasingly divided as to what the FOMC may well do when it comes to interest rates tomorrow, with opinions split between another 25bps hike, a pause, and a 25bps rate cut," said CMC Markets analyst Michael Hewson.

"Assuming recent gains hold, and we get no further surprises then the odds still favour a 25bps rate rise, otherwise, the Fed runs the risk that it sends the message it is more concerned about financial stability than it is about its fight against inflation. A rate cut would send an even worse message that the Fed sees something the market doesn’t and could spook already jittery markets even further."

In economic news, the latest survey from the ZEW Center for European Economic Research in Mannheim showed that German business sentiment deteriorated more than expected in March.

The headline ZEW investor expectations index fell to 13.0 from 28.1 a month earlier. Economists had been expecting a decline to 17.1. Meanwhile, the current conditions index dipped 1.4 points to -46.5.

ZEW President Achim Wambach said: "The international financial markets are under strong pressure. This high level of uncertainty is also reflected in the ZEW indicator of economic sentiment.

"The assessment of the earnings development of banks has deteriorated considerably, although it still remains slightly positive. The estimates for the insurance industry have also declined significantly."

Elsewhere, data from Eurostat showed that eurozone construction output rose 3.9% on the month in January, reversing the 2.3% drop seen in December.

Figures released earlier by the Office for National Statistics showed that UK government borrowing hit a record high for February due to the energy support scheme.

Public sector net borrowing came in at £16.7bn, up from £7.1bn in February 2022 and above consensus expectations of £11.4bn. It marked the highest level for the month of February since records began in 1993.

However, the data also showed that debt interest payments fell by £1.3bn on the year to £6.9bn.

In equity markets, the Stoxx 600 banks index was up 2.9% at 146.92, as the sector gained back some ground after recent heavy losses.

Elsewhere, shares in UK and French DIY retailer Kingfisher reversed earlier gains to trade down, as it posted a drop in full-year profit - in line with its guidance - with trade normalising after the pandemic boost.

Thyssenkrupp was up after the German Handelsblatt newspaper reported that CVC was considering buying its steel unit.

Pearson gained after agreeing to sell its online learning unit to private equity group Regent.