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20 March 2023
- The liquidity crisis has officially taken over the banking industry as more banks are joining the list of banks with liquidity issues. Among the affected ones is also one of the European bank’s from Switzerland, Credit Suisse which has already been in a battle with a set of scandals and after the refusal from the Saudi National Bank regarding a financial help, Credit Suisse was reported to be bought by UBS for $3.2 billion, however, the negotiations are still going on.
- New York’s Signature Bank, which had a significant exposure to the crypto market, also reported liquidity pressures. Due to the situation, FED had an emergency meeting after which it announced that it is prepared to address the issue and to provide necessary aid.
- Positive data from the US NFP sparked hopes that the FED will be increasing the interest rates by 25 basis points, however, due to the turbulence in the banking sector, the rates may hike as high as by 50 basis points.
Indices
Last week was full of inflation data, along with the banking crisis, it was clear that markets were volatile. Major US indices closed with mixed results with the large-cap tech shares, which produce substantial free cash flow and have limited exposure to regional banks, demonstrated remarkable performance. Moreover, large-cap growth stocks outperformed their value counterparts by 580 basis points (equivalent to 5.80 percentage points).
The financial system’s strains sparked fears, causing a significant decline in shares across Europe. The pan-European STOXX Europe 600 Index ended the week with a 3.84% decrease in local currency terms, while major stock indices, such as Germany’s DAX Index and the FTSE MIB Index, fell by 4.28% and 6.55% respectively. The UK’s FTSE 100 Index also experienced its largest weekly drop since early June 2020, losing 5.33%.
US30 -0.15% |
US100 +5.83% |
US500 +1.43% |
GER40 -4.28% |
Commodities
Since the spread of the banking crisis into Europe, the prices of Gold gained a clear momentum as investors are seeking safe havens to park their investments. The price of Gold hit the 11-month high and is on its way to reaching $2000 per ounce. However, the winner of the previous week was Silver which closed the week with highest gains among all commodities.
On Friday, oil prices settled down after earlier gains of over $1 a barrel, as concerns over the banking sector led to the largest weekly declines in several months for both benchmarks. The 2022/23 winter has been predominantly warm, resulting in significantly less heating demand in the United States than usual. This has left more gas in storage than previously estimated.
NATGAS -3.33% |
Forex
On Friday, the dollar weakened due to the ongoing declines in the shares of Credit Suisse and First Republic Bank, which caused market jitters over the possibility of contagion and raised concerns of a recession due to the impact of tighter monetary policy. The Dollar Index, which measures the value of the dollar against six other currencies, experienced a slight drop as traders are awaiting the outcome of the Federal Reserve’s two-day policy meeting. The meeting is expected to conclude with a one-quarter percentage point increase in interest rates on March 22.
EUR/USD +0.22% |
USD/JPY -2.36% |
GBP/USD +1.22% |
USD/CAD -0.72% |
Macro
Last week’s anticipated inflation rate came out as investors expected and the markets reacted accordingly without causing any significant turbulence. Yearly inflation was 6% as actual vs 6% as consensus. In comparison with the previous month, it was 6.4%. Yearly core inflation reported was 5.5% vs 5.5% as consensus and the previous month report was 5.6%.
In February 2023, the producer prices for final demand in the US fell by 0.1% on a monthly basis, which was contrary to the market expectations of a 0.3% increase. The prices of goods decreased by 0.2% following a 1.2% increase in January.
ECB, as expected, raised the interest rates by 0.5% from 3% to 3.5%. In contrast, yearly inflation rate in Europe also came out as forecasted as data from February reported 8.5%.
According to the Office for National Statistics (ONS), the UK jobless rate remained steady at 3.7% during the three months through January, which is close to a record low. This was consistent with the rate from the previous three months. Additionally, the total pay growth in this period decreased from 6.0% to 5.7%.
What to watch out for this week
- In the upcoming week, we will have a lot of interesting macroeconomic events to follow, as well as the ongoing crisis in the banking industry.
- On Tuesday 21/3, German ZEW comes out. A leading indicator that will tell us the current mood in the largest economy in the Eurozone which will shape the overall ZEW for the Eurozone. After that, Canada will be reporting inflation rate which will be followed by reports on Existing Home Sales in the US.
- On Wednesday 22/3, the day will begin with February’s Inflation rate in the UK, however, the main spotlight will be the FED’s decision on the interest rate and its projections. The UK’s decision on the interest rate is scheduled to come out the following day.
- On Friday 24/3, the UK will be reporting Retail Sales, and Durable Goods Order will come out in the US giving us hints about the country’s economy followed by Preliminary data on the PMI in the Eurozone, as well as the US.
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