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Equities rebound as financial stability panic seems to be over

From 27-31/03/2023

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Banking sector anxieties subsided this week and stocks around the world rallied. Sentiment also got boost by some expectations that the U.S. Federal Reserve may continue to moderate its monetary tightening. Quiet before the storm? Will other banks around the world sooner or later find themselves in a liquidity crisis, such as the three banks in the US, and Credit Suisse in Europe, which recently encountered difficulties?


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AMERICAS

US stocks posted solid gains. For the week, the Dow Jones spiked by 3.2%, while the tech-heavy Nasdaq and the S&P 500 soared by 3.4% and 3.5%, respectively. A lower-than-expected reading on the Federal Reserve’s preferred inflation gauge cheered investors. The U.S. core (excluding food and energy) personal consumption expenditure (PCE) price index for February rose 0.3% in February, less than the 0.4% expected by economists polled by Dow Jones.

The week also brought the end of the first quarter of 2023, a volatile quarter rocked by concerns about a banking crisis that felled several U.S. regional lenders including Silicon Valley Bank and Signature Bank. First Citizens Bank’s purchase of Silicon Valley Bank’s deposit and loan portfolios allayed the threat of a systemic bank crisis but America’s regional banks are nevertheless still fragile. General worries the Fed’s rate increases could lead the economy into recession also persist. Meanwhile, GDP only increased by 2.6% instead of the 2.7% most analysts had pencilled in.

In Brazil, equities rallied. Stocks as measured by the BOVESPA index returned 3% as the government presented a new fiscal framework draft. Investors expect President Luiz Inácio Lula da Silva’s team to show how to increase tax collection, reduce taxes and prevent the creation of new taxes.  Brazil and China have reached a deal to ditch the US dollar when paying each other for trade goods.

ASIA

Japanese markets rose over the week as Prime Minister Fumio Kishida announced that the government would draw up a “new capitalism” growth plan in June, focusing on wage increases, innovation and resolving social problems through support for start-ups. Core consumer inflation in Tokyo slowed in March for the second straight month but remained well above the Bank of Japan’s (BoJ’s) 2% inflation target and still came in ahead of expectations at 3.2% year on year.

Chinese equities were also higher as positive economic data coupled with supportive comments from Beijing officials boosted confidence in the country’s growth outlook. Speaking at the Boao Forum for Asia, the newly-appointed Premier Li Qiang’s message was that “China is open for business.” He also pledged that China’s recovery would deliver new momentum to the world economy despite the geopolitical backdrop.
The IMF projected that China’s economy would grow 5.2% this year, while global growth would slow to below 3.0%.

With Jack Ma’s return to mainland China, Chinese e-commerce giant Alibaba Group  that Ma founded nearly 25 years ago, is restructuring into six independently run entities that can independently raise capital or even seek initial public offerings. Many analysts believe that Beijing’s regulatory pressure on the internet industry may be coming to an end.

EUROPE

European stock markets recovered as investors took heart from the sale of failed Silicon Valley Bank’s assets and takeover of embattled Swiss lender Credit Suisse by UBS. Sentiment was boosted by the return of Sergio Ermotti as CEO at Swiss banking giant UBS. In local currency terms, the pan-European STOXX Europe 600 Index ended 4.03% higher.

Sentiment also improved as data showed euzone’s inflation slowed to the lowest level in 12 months as energy costs subsided. Annual consumer price growth in the 20 countries that use the euro slowed to 6.9% in March from 8.5% in February. However, the core rate that excludes volatile food and energy prices ticked up to 5.7% from 5.6%.

In France, sweeping protests continue over Macron’s proposal to raise the retirement age for most workers from 62 to 64. The French government said that some 740,000 protesters joined 240 rallies held throughout France on March 28, although unions put the figure at 2 million. Unions have called for an 11th day of national strikes on April 6.

In the UK, revised official data showed that the country was not formally in a dreaded recession between October and December, with UK GDP increasing slightly by 0.1 per cent in the final quarter of 2022. House prices fell 3.1% in March, the largest annual decline since July 2009 as consumer confidence remained weak and household budgets came under increasing pressure from high inflation. BoE Governor Andrew Bailey said in a speech that recent problems in the banking industry would not sway the central bank’s focus on inflation.

European Central Bank policymakers have this week suggested more interest rate hikes are necessary, but may come at a slower pace. The ECB hiked by 50 basis points in March.

MIDDLE EAST

In Israel, trading in the Tel Aviv Stock Exchange (TASE) in the last week of March (26-30) was conducted against the backdrop of the ongoing protests against the legal reform. In addition, trading was affected by tensions with the US regarding the legal reform, and by increased expectations of an interest rate increase in the economy this coming Monday. The benchmark TA35 index decreased by 2.3%.


Content Disclaimer:
This page has been prepared for informational purposes only. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument.


For any comments, suggestions or corrections email: kbalkoudi@worldmarketsdaily.com

Kyriaki Balkoudi is a markets editor for World Markets Daily. She holds a bachelor’s degree in Balkans Studies from Aristotle University of Thessaloniki, Greece and a master’s degree in International Politics from City University London, UK.


References:
“Global Markets Weekly Update” T. Rowe Price. March 31, 2023
“Weekly market wrap” Edward Jones. March 31, 2023
“Weekly Market Recap” John Hancock Investments. March 31, 2023
“Schwab Market Update” Charles Schwab. March 31, 2023
“Market Analysis” Edmond de Rothschild. March 31, 2023


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