HSBC Plc (HSBC) surged to a near four-year and led bank stocks around the region to solid gains in early European trading as investors repriced growth and profit expectations for the world's biggest lenders.
The advanced followed much better-than-expected dividend and share buyback plans unveiled by some of the biggest U.S. banks, including Citigroup (C - Get Report) , Bank of America (BAC - Get Report) and Morgan Stanley (MS - Get Report) late Wednesday after Federal Reserve stress tests opened the door for bigger shareholder returns in the coming quarters.
HSBC shares gained more than 4.6% in the opening hour of London trading to change hands at 717.1 pence each, the highest since August 2013, after hitting the highest intra-day level in Hong Kong trading for at least nine years.
The sector is also getting support from a series of central bank signals that suggest rising interest rates and faster inflation, two conditions that typically support banks' ability to generate higher profits.
The Stoxx 600 Europe Banks index, the broadest measure of financial sector shares, gained 1.52% to 185.85, the highest in more than a month, as the euro continued to trade past its one-year high against the U.S. dollar following a bullish speech from European Central Bank President Mario Draghi earlier this week that many traders interpreted as a signal for near-term policy tightening.
The pound also continues to trade at multi-week highs against the greenback after Wednesday's speech from Bank of England Governor Mark Carney referenced the removal of stimulus if U.K. growth were to surprise on the upside.
The change in tone, while not seemingly coordinated, nonetheless suggests a shift away from the 'near zero' interest rate strategies and extraordinary stimulus efforts put in place during the global financial crisis nearly a decade ago as economies recover and inflation slowly begins to accelerate.
The gains for both the pound and the euro -- which traded at 1.1424, the highest in more than a year -- helped push the U.S. dollar index to a nine-month low of 95.73 as investors bailed out of the greenback in search of both yield and diversification.
Wall Street, however, should proivde a near-term rebound for the buck, given that benchmark U.S. Treasury yields rose 3 basis points to 2.23%, stocks booked healthy gains across the board and Federal Reserve Chairwoman Janet Yellen confirmed the FOMC's intention to gradually raise interest rates in order to deliver on its employment and price stability mandate.