U.S. stocks ended the day higher after a First Republic Bank rescue package was secured, sparking a rebound in shares of embattled regional lenders. Treasuries fell after the European Central Bank delivered a rate hike that added to bets the U.S. central bank will also raise next week.

The S&P 500 advanced nearly 2 per cent after the biggest banks in the US agreed to contribute US$30 billion in deposits to First Republic. The regional lender’s shares had tumbled more than 60 per cent before earlier this week as investors speculated the bank could be the next to fail after two high-profile demises touched off the crisis last week. An index of regional banks advanced, the gauge is still down over 20 per cent this March. The tech-heavy Nasdaq jumped 2.7 per cent per cent to a one-month high. 

“Tech continues to trade based on rates and forward expectations for the path of the Fed,” Will Hershey, chief executive officer of Roundhill Financial Inc., wrote. Short-term movements in tech are not “contemplating the current issues in the banking sector and what that could mean moving forward for cost of capital and a broader slowdown in the economy.”

Meanwhile, Treasury Secretary Janet Yellen’s prepared remarks presented to Capitol Hill Thursday “did a good job of boosting confidence about the banking system,” said Art Hogan, chief market strategist at B. Riley Wealth Management.

“They’d like to see the support come from the private sector and that is likely going to be now the first of many larger, more sound banks supporting some of those banks that might have impaired balance sheets,” Hogan said of the big lenders coming to the regional bank’s aid. 

The First Republic news comes after a lifeline from Swiss regulators overnight stabilized Credit Suisse Group AG, easing worries that the European lender would lead to a cascading crisis in that region. The idea of a forced combination with a larger rival, UBS Group AG, was shot down on Thursday. Depository receipts in Credit Suisse ended the session unchanged the cost to insure the Swiss bank’s debt has been rising.

Read more: Credit Suisse Default Swaps Widen, Bonds Sink as Optimism Fades

“That the market is reacting relatively positively to the fact that we are applying some guardrails here shouldn’t necessarily be a catalyst for markets to move much higher,” said Meera Pandit, JPMorgan Asset Management global market strategist on Bloomberg TV. “There is still some vulnerability here to a correction because we don’t know how this continues to evolve.”

Markets were also digesting a European Central Bank rate hike and comments from the ECB president that inflation is projected to remain too high for too long. The Federal Reserve is expected to raise interest rates by a quarter percentage point next week. Rising odds for that move sent two-year Treasury yields back above 4 per cent, though they remained lower than they were just a week ago.

Government securities swung in the session with yields eventually climbing. A measure of Treasury market volatility remained elevated around levels last seen in the midst of the global financial crisis.  

Friday’s quarterly triple witching, where contracts for index futures, equity index options and stock options all expire, could amp up swings in tomorrow’s trading.

All eyes are now on the Federal Reserve’s policy meeting next week, with traders debating whether the central bank will increase interest rates. Market pricing suggests the Fed will soon pivot and will start cutting rates this year.

Data Thursday showed first-time unemployment claims dropped more than analysts’ estimates last week, while housing starts and building permits exceeded expectations, underscoring the economic resilience that’s allowed the Fed to tighten aggressively over the past year.

“Central banks appear to be willing to push through the problems higher rates are causing in order to address inflation,” Louis Navellier, chief investment officer of Navellier & Associates wrote in his daily newsletter. He views the ECB’s rate increase as a “test run” ahead of the next Fed meeting. 

“All else being equal, more restrictive lending increases recession risk,” he said. “Expect lots of volatility in the near term and remain cautious as this banking crisis plays out.”

Stocks

• The S&P 500 rose 1.8 per cent as of 4 p.m. New York time
• The Nasdaq 100 rose 2.7 per cent
• The Dow Jones Industrial Average rose 1.2 per cent
• The MSCI World index rose 1.3 per cent

Currencies

• The Bloomberg Dollar Spot Index fell 0.3 per cent
• The euro rose 0.3 per cent to US$1.0614
• The British pound rose 0.5 per cent to US$1.2118
• The Japanese yen was little changed at 133.47 per dollar

Cryptocurrencies

• Bitcoin rose 2.5 per cent to US$25,003.38
• Ether rose 1.8 per cent to US$1,683.68

Bonds

• The yield on 10-year Treasuries advanced 11 basis points to 3.57 per cent
• Germany’s 10-year yield advanced 16 basis points to 2.29 per cent
• Britain’s 10-year yield advanced 10 basis points to 3.43 per cent

Commodities

• West Texas Intermediate crude rose 0.7 per cent to US$68.09 a barrel
• Gold futures fell 0.4 per cent to US$1,924.40 an ounce