US stocks struggle amidst banking turmoil
Market Summary
Last week, investors focused on the previous Friday’s failure of Silicon Valley Bank (SVB) and ECB deposit rate decision.
In the United States, the major indexes closed mixed for the week. Investors now expect rates to end the year lower. The Labor Department reported that headline consumer inflation had moderated in February in line with expectations to 6.0% on a year-over-year basis. The yield on the benchmark 10-year note touching an intraday low of 3.37% on Thursday, while investment-grade credit spreads widened to a four-month high. In Europe, shares tumbled on fears sparked by strains in the financial system. ECB sticks to half-point rate hike to 3.0%. UK unemployment still near record low of 3.7%.
In Asia, the yield on the 10-year Japanese government bond fell to 0.30%, from 0.42% at the end of the prior week. The yen strengthened to about JPY 133 against the U.S. dollar from around JPY 135 the previous week. The People’s Bank of China (PBOC) said it will cut the reserve requirement ratio (RRR) for most banks by 25 basis points for the first time this year. New bank loans reached a higher-than-expected RMB 1.81 trillion in February compared with January’s record RMB 4.9 trillion.
Major News
UBS is in discussions to take over all or part of Credit Suisse.
Financial stocks dived this week as the fallout from the collapse of Silicon Valley Bank spread through global markets. Banks in the US, Europe and Japan have collectively lost $459bn in market value so far this month.
Chinese president Xi Jinping will pay a state visit to Russian president Vladimir Putin on Monday.
Labour vowed to reverse chancellor Jeremy Hunt’s controversial Budget move to provide a big pension tax break to the well-off.
What Caught Our Attention
The failure of Silicon Valley Bank, a US lender that specialized in providing banking services to tech startups, caused shockwaves through the financial system. The bank's troubles arose due to rising interest rates, plunging bond holdings, and depositors withdrawing their funds. HSBC bought SVB's British assets, but regulators have struggled to find a buyer for the rest of the bank. Signature Bank in New York also failed, rattling markets and complicating the Fed's path for further monetary tightening.
Meanwhile, despite the turmoil in banking markets the European Central Bank pushed ahead with a half-percentage point rise to interest rates, taking its deposit facility to 3%. As fear sweeps the market, Credit Suisse saw its share price plunge by a quarter when its largest investor, Saudi National Bank, said it would not increase its stake in the business. The troubled Swiss bank had to turn to Switzerland’s central bank for SFr50bn ($54bn) to bolster its liquidity and buy back some of its debt.
Source: Kredens Capital, T. Rowe Price, Bloomberg, Financial Times, Wall Street Journal, The Economist, Nikkei Asia
