Weekly market recap 13 March 2023

13 March 2023

The hottest topic of the previous week was most probably the incident with the Silicon Valley Bank’s collapse which will inevitably have a direct impact on the broader economy. Silicon Valley Bank’s (SVB) collapse was reported to be due to a combination of factors, including an over-reliance on risky lending to start-ups, inadequate risk management practices, and insufficient capital buffers to absorb losses.
Despite some mixed details, the US labor market showed a robust job creation in February, which continued to exceed expectations. Although there was positive news that more women and minorities joined the workforce and the wage growth increased for many workers, job gains were mainly limited to a few industries, and the average number of hours worked decreased.
On Friday, the New Development Bank, a multilateral bank established by the BRICS countries, announced that it had decided to appoint a new Brazilian leader at the request of the government of Brazil’s newly elected president, Luiz Inacio Lula da Silva. On the route to detach from the US Dollar in trades the NDB is aimed to provide services to Brazil, Russia, India, China, and South Africa, as well as Bangladesh and the United Arab Emirates.

Indices

The S&P 500 Index experienced a significant decline over the week, as investors processed additional comments from Federal Reserve Chair Jerome Powell and the indications that he and other policymakers needed to take further action to address inflation and the strong labor market. On Friday, the index dropped to its lowest point since January 5.

European shares tumbled in line with worldwide markets due to concerns about the banking system’s stability and the potential impact of sustained high interest rates. The pan-European STOXX Europe 600 Index dropped 2.26% in the local currency terms, while major stock indexes, such as Germany’s DAX Index, declined 0.97%, and the UK’s FTSE 100 Index fell 2.50%.

US30
-4.44%

US100
-3.75%

US500
-4.55%

GER40
-0.97%

Commodities

With the production of natural gas still being strong and a decline in the demand, thanks to the warmer winter season this year, has caused the price of Natgas to fall by 19.08% in the previous week, which marked a significant fall in comparison to the previous 2 weeks.

The Energy Information Administration (EIA) reported that U.S. crude inventories decreased by 1.694 million barrels last week, marking the first weekly decline since December after 10 consecutive weeks of increases that added approximately 60 million barrels to inventories. However, investors were more focused on Powell and the increasing possibility that the Federal Reserve’s intended rate hikes could lead to an economic recession.

Gold
+0.65%

Silver
-3.39%

BRENT
-3.55%

NATGAS
-19.08%

Forex

On Friday, the dollar lost strength as the February’s labor data in the United States indicated aslower wage growth, implying that the Federal Reserve’s pace of interest rate hikes may be moderate and therefore reducing the attractiveness of the greenback. Although the U.S. economy added jobs quickly in February, the decrease in the wage growth and the increase in the unemployment rate caused financial markets to lower their expectations for a 50-basis point rate hike during the Fed’s upcoming meeting in two weeks.

Investors pushed the Canadian dollar down against the dollar, breaching the $1.38 mark for the first time since November, in response to signals that the Bank of Canada’s tightening cycle may have come to an end. In its March meeting, policymakers left the target for the overnight rate unchanged at 4.5%, as anticipated, and stated that they would maintain it at the present level if the economic conditions developed broadly in line with the expectations.

EUR/USD
+0.10%

USD/JPY
-0.65%

GBP/USD
-0.10%

USD/CAD
+1.72%

Macro

Last month, payrolls increased by 311,000, surpassing the expectations from the analysts. This extended the longest streak in data, as the job growth exceeded the expectations for the eleventh consecutive month. The labor-force participation rate, which indicates the proportion of the population working or seeking employment, also increased to 62.5%, the highest since March 2020 and surprisingly, the unemployment rate increased from 3.4%, the lowest in five decades in January, to 3.6%.

GDP growth rate and the numbers on employment change released in the Eurozone have confirmed that the economy is weakening due to the effects of higher interest rates and the ongoing impacts of the war on Ukraine.

Despite the sharp increase in interest rates and a collapse in consumer confidence towards the end of 2022, preliminary estimates reveal that the U.K. economy defied gravity and increased by 0.3% in January, resulting in the rolling quarterly growth rate avoiding negative territory once again.

On Friday, the Bank of Japan (BOJ) chose to maintain its ultra-low interest rates and refrained from altering its contentious bond yield control policy, keeping its possibilities open before a leadership transition scheduled for April.

What to watch out for this week

The SVB’s case will be worth following, although the impact will not be as significant as the impact caused by Leehman Brothers in 2008, however, it will give us the opportunities to learn the vulnerabilities due to increasing interest rates.
Although the mixed US jobs report on Friday reduced concerns about a 50-basis point rate hike at the upcoming Fed meeting, a higher-than-anticipated inflation reading on Tuesday could rekindle fears among investors who are already anxious following the collapse of SVB. Economists predict that monthly inflation will increase by 0.4% in February, following a 0.5% rise the previous month, resulting in an annual increase of 6.0%.
The European Central Bank (ECB) appears to be preparing to increase interest rates by 50 basis points at its meeting on Thursday, having already raised rates by 3 percentage points since July in an attempt to control inflation. This move is in response to concerns about the persistence of price pressures, which have been compounded by recent data indicating that underlying inflation in the Eurozone increased last month.
For the UK, we are expecting reports on earnings and employment.

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Restrictions

NO restrictions

Source: forexfactory.com

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