Investor sentiment remained fragile, however most equity markets managed to see modest weekly gains while bond yields drifted lower. One of the main focal points was the meeting of the Federal Open Market Committee in which US interest rates were increased by a quarter point to the range 4.75%-5% as expected, while indicating that its tightening cycle was nearing an end. Given the strains in the financial system, traders are now expecting that the FOMC will keep rates on hold at their next meeting in May. The prospect of a rate peak added support to markets.
For the week the S&P 500 added 1.4%, and the Nasdaq gained 1.7%, with technology stocks leading gains. The financial sector was once again a primary laggard owing to uncertainty in the regional banking segment. First Republic Bank shed more than 30%, despite the previous week’s effort to shore up the bank. Comments from Treasury Secretary Janet Yellen that the government was not considering “blanket insurance” on all US bank deposits also weighed. The real estate sector was also amongst the biggest decliners due to concerns that banking stress could affect the commercial real estate market. The yield on the 10-year Treasury note ended the week lower at 3.38% on the prospect of a Fed pause.
The pan-European STOXX 600 ended the week 0.9% higher although bank stocks once again sold off. Markets generally took UBS’ acquisition of Credit Suisse in their stride, although on Friday Deutsche Bank came into the spotlight as a potential next trouble point, sinking 8.5%. Despite the banking turmoil, the Swiss National Bank raised interest rates by 50 basis points to 1.5%, although remained more hawkish than expected, stating that additional rate hike could not be ruled out. Meanwhile the Bank of England raised interest rates by 25 basis points to 4.25% as expected. This came one day after UK inflation unexpectedly accelerated.
Japan’s Nikkei ended modestly higher for the week, taking stock of all bank news. In economic news, core inflation in Japan eased from a four-decade high to 3.1% in February. Over in China, markets also advanced. The People’s Bank of China left its benchmark one-year and five-year loan prime rates at 3.65% and 4.3% respectively, for a seventh consecutive month, raising hopes that it will maintain an accommodative stance.
Latin American currencies managed to benefit from the weaker US dollar after the Fed meeting, as well as climbing commodity prices. One equity market that bucked the positive trend was Brazil’s Bovespa index, down over 3%, its fifth consecutive weekly decline. Declines came after President Luiz Inácio Lula da Silva remained critical of the central bank, which once again held the Selic rate at a six-year high of 13.75%.
The value of your investment can fall as well as rise in value, and the income derived from it may fluctuate. You might get back less than you invest. Currency exchange rate fluctuations can also have a positive and negative affect on your investments. Please note that EFG Harris Allday does not provide tax advice. Past performance is not a reliable indicator of future performance.
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