Weekly Market Wrap 17/03/2023

The aftermath of Silicon Valley Bank’s collapse put immense pressure on the financial sector, as well as causing global central banks to carefully consider their next move with interest rates. The UK government announced the latest budget alongside optimistic economic forecasts, whilst data on the US economy provided a mix of signals. The European Central Bank has to make a tough decision; whether to offer increased protection to banks, or to continue the fight against inflation. 

UK Market   

The UK market ended the week lower. The failure of SVB has put UK financial stocks under pressure this week, leading the BoE to reconsider its next move with interest rates. Market expectations are currently split between a 25bps increase or no increase in rates, as the central bank looks to avoid increasing pressure on UK banks as well as continue its efforts in bringing UK inflation lower. This week UK Chancellor Jeremy Hunt unveiled the latest budget, which included a number of key changes to UK worker’s pensions and corporation tax. Jeremy Hunt also told parliament that OBR projections now show the UK avoiding a recession in 2023, before returning to growth in 2024 whilst inflation is expected to fall to 2.9%.  

US Markets 

The S&P 500 is currently ending the week up 2.56% at 3,960 and the NASDAQ is 6.4% higher at 12,581. US CPI released on Tuesday was in line with estimates at 6.0% for February, falling from 6.4% in January. However, core CPI rose by more than expected MoM, increasing by 0.5% when 0.4% was expected by economists. The following day, PPI delivered a downside surprise, rising just 4.6% in February when a 5.4% increase was expected. PPI actually fell 0.1% MoM as good prices went lower, driven by decreasing food costs. Retail sales fell by 0.4% in February. Economic data will for once not be the key factor in the Fed’s next interest rate move, as continued pressure on banks has caused the central bank to rethink its next steps. Markets have abandoned their expectation of a 50bps hike at the March meeting, with Investors leaning towards a 25bps move, whilst some participants forecast no increase at all. Mid-size US lender First Republic Bank has also fallen victim to heavy withdrawals; and has received $30 billion worth of support in deposits from major US banks.  

European Markets  

The Euro Stoxx 50 is currently down 1.75% at 4,155, the DAX is 2.21% lower at 15,088, whilst the CAC 40 has fallen 2.07% to 7,071. Despite ongoing pressure on financial stocks, the European Central Bank decided to increase the bank rate by 50bps on Thursday. Christine Lagarde argued that banks were in a much stronger position than in 2008 and that allowing inflation to persist at high levels was also a significant threat to financial stability.  

Fixed Income  

Yields on 2-Year US government bonds fell heavily to 4.15% this week, as the Federal Reserve looks set to abandon plans for a 50bps rate increase. Yields on the 10-Year were volatile throughout the week, but ended the week 16bps lower at 3.54%.  

Commodities 

Brent Crude fell by 9.40% this week, dropping to $75 per barrel. OPEC+ stated that prices had fallen due to investor concerns about the financial sector and that there was no issue within the oil supply and demand balance.  

The Week Ahead 

Monday – China Interest Rate Decision 

Tuesday – Canada CPI  

Wednesday – UK CPI & Fed Interest Rate Decision  

Thursday – UK Interest Rate Decision & US Initial Jobless Claims 

Friday – UK Retail Sales 

*Price changes as of last week’s close unless stated otherwise.