Silicon Valley Bank (SVB) grabbed the headlines last week, with a very hasty collapse on Thursday and Friday. This dominated the tone for markets last week and this has continued over the weekend and into this week. The latest news suggests that the US authorities have indicated that they will act as lender of last resort which has gone a long way to shoring up the markets as we head into the new week. There’s some key data this week ahead of next week’s Central Bank meetings for the US and the UK – as well as the UK budget this Wednesday. Ordinarily, they’d be the key focal points to drive markets, but we’d expect all eyes to remain on SVB and further developments there.
Last week
- Stock markets had their worst week since September last year
- US share markets performed worst. Silicon Valley Bank grabbed all of the headlines and weighed on sentiment.
- Japan was the only bright spot for equity markets.
- Bond markets held up well.
- The US jobs market showed continued signs of strength
- UK growth data came in better than expected
This week
- Developments around Silicon Valley Bank’s collapse will be the focal point for markets this week.
- Aside from that, we have UK employment data tomorrow and the Spring Budget on Wednesday.
- In the US we have inflation data tomorrow and Retail Sales data on Wednesday. These are key data points ahead of the Federal Reserve’s meeting next week.
- China has a lot of data out this week. Tomorrow sees the release of Retail Sales data, Fixed asset investment data and Industrial Production numbers.
- Thursday sees the European Central Bank meet where it is likely they will hike interest rates by 0.5% to 3%.
Equity returns are in GBP, Oil is in USD. Gold is shown in GBP. Bond returns are all shown in GBP. Source Bloomberg.
Last week in more detail
- Last week was the worst for global stock markets since September last year, with the global index returning -3.8% in Pound terms. The week began with more renewed worries about rising interest rates and ended with a big sell-off in the banking sector following a run (and subsequent closure) of a technology-oriented regional bank in the US called Silicon Valley Bank (“SVB”). SVB Financial Group fell by 60.72% on Thursday as customers rushed to pull deposits after the SVB was forced to sell and realise losses in order to meet capital requirements. The stock was halted from trading on Friday and marks the second-biggest bank failure in US history. This weighed intensely on the global banking and financials sector last week which was down by 7.2% and 6.1% respectively; both sectors indiscriminately sold-off.
- News around SVB continued to unfold over the weekend. The latest news is that the US Federal Reserve, the Treasury and the Federal Deposit Insurance Corporation have announced that SVB depositors “will have access to all of their money starting Monday”. They have also put in provisions for other banks to access cash (and avoid selling assets such as bonds that have depreciated) in order to get liquidity to meet any deposit withdrawal requests. In the UK, it has just been announced that HSBC will buy SVB’s UK arm.
- The pain in the US banking sector made for the US stock market being the worst performer amongst the equity markets last week; down by 4.9%. This made for its worst week in over a year in GBP terms and dragged on the global market (since the US carries a 67% weighting in the global index).
- UK stock markets were down by about 2.5% last week, with returns being fairly similar across the various UK markets (i.e. the FTSE 100 was down by 2.4%, the FTSE 250 down by 2.8% and the FTSE All Share down by 2.8%). The key feature last week for UK share markets was the performance of the materials sector; down by 7.1%. This followed some slightly weaker-than-expected Chinese economic data which saw imports fall by more than expected and inflation come in less than expected (at 1% vs an expectation of 1.9% which suggests that the economy still has a way to go before “reopening” kicks in). This, combined with the news around SVB, meant that commodity and banking stocks weighed on the UK index, with names like Glencore (-9.6%), Rio Tinto (-8.3%), Barclays (-8.2%) and Anglo American (-7.6%) all lagging.
- Perhaps the one bright spot for equity markets last week was the performance of Japan, with the Nikkei 225 index rising by 1.4% last week. This followed the last monetary policy meeting for the outgoing Governor Kuroda and the decision by the Bank of Japan to keep interest rates on hold at the super low level of -0.1%. Kuroda will be replaced by Governor Kazuo Ueda who has hinted at a move away from the environment of super low yields which Japan has been in for many years.
- Investors rushed for the cover of the bond markets last week, with UK government bonds rising by 2.3% on the week and UK corporate bonds rising by 1.2%. This saw UK 10-year yields close the week at 3.64% and UK investment grade bonds close the week at 5.59%. Despite it being a brutal week for stock markets, it was both healthy and reassuring to see the bond markets being treated once again as “safe” assets and we’d also note that the US yield curve became less inverted on Friday (having been at a 41-year extreme of -109 basis points on Thursday) as investors rushed for the safety of longer-dated 10 year bonds.
- Silicon Valley Bank was far and away the biggest driver for markets last week, but there was also some important economic data and developments to note. Fed Chair Powell testified before Congress and noted that the Fed still had work to do to tame inflation and the much-watched monthly US jobs data on Friday surprised to the upside. Friday’s payrolls data showed that 311,000 new jobs had been created in the US in February: well above the consensus estimates (as per Bloomberg economists) of 225,000.
- Finally, there was some modestly positive economic data for us to cheer in the UK. The monthly growth number for February came out on Friday and showed an expansion of 0.3%; this was more than the 0.1% that had been forecast and a jump up from the -0.5% contraction we saw in January which set the UK on a 3 month “growth” number of 0.0%. Not that much to cheer really (!), but it was better than expected although it did very little to thwart the negative momentum from SVB which drove all markets last week including the UK.
SVB Financial Group’s share price fell by over 60% on Thursday last week as depositors rushed to get their cash out. Trading in the stock has now been suspended.
Source Bloomberg.
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