Banking sector failings take the spotlight
The nervousness was broadly contained to the US financials sector as investors showed concern for the health of regional US lenders enduring a liquidity crunch. The events of the last two weeks, including the bankruptcy of Silicon Valley Bank, have caused many investors to reconsider interest rate prospects.
The Federal Reserve meets later this week to make an interest rate decision and some investors have begun to argue whether it will indeed continue to raise rates in the face of banking uncertainties.
As it stands investors are pricing in a 60% probability that the Federal Reserve will raise rates by 25 basis points (0.25%). Separately, last week also saw the release of the US inflation report. The report showed that consumer prices had risen by 0.4% for the month of February, and 6% on a yearly basis, lower than the previous report’s reading of 6.4%. The report was viewed as having no major surprises, however some investors noted inflation remains sticky.
Meanwhile news in Europe was dominated by Credit Suisse. The 167 year old Swiss lender, considered one of the global nine ‘bulge-bracket’ banks, saw its’ share price tumble by a quarter of its value last week as investors and clients lost confidence in its ability to survive withdrawals. As the bank is deemed systematically important, the Swiss central bank agreed to supply considerable liquidity in order to keep it afloat and reassure markets and depositors.
Late into the weekend a deal with the bank UBS, its largest Swiss rival, was agreed to acquire Credit Suisse for 3 billion Swiss Francs (€3 billion). On Thursday the ECB raised interest rates by 50 basis points, projecting that inflation would remain above its target 2% level into 2025. This signalled the ECB’s commitment to inflation dampening despite potential banking difficulties, the benchmark ECB deposit rate is now at 3%
Global stocks were up last week by 0.4% in euro terms and down 0.0% In local terms. Year-to-date global markets were up 2.6% in euro terms and 2.4% in local terms. The US market, the largest in the world, finished at 1.9% in euro terms and up 1.5% in local terms.
Fixed Income & FX
The US 10-year yield finished at 3.43% last week. The German equivalent finished at 2.11%. The Irish 10-year bond yield finished at 2.62%. The Euro/US Dollar exchange rate finished at 1.07, whilst Euro/GBP finished at 0.88.
Oil finished the week at $67 per barrel and is down -14.1% year-to date in euro terms. Gold finished the week at $1,989 per troy ounce and is up 7.9% year to-date in euro terms. Copper finished the week at $8,573 per tonne
The week ahead
Tuesday 21st March
US Existing Home Sales report is published.
Wednesday 22nd March
Federal Reserve set to make interest rate decision.
Thursday 23rd March
Global manufacturing and services PMIs are released.
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