US markets initially pulled back on Tuesday morning after Jerome Powell stated that the Fed would likely hike rates for longer and at an increased pace following January’s hotter-than-expected inflation report and an unexpected surge in job growth of 517,000 in January, which was more than double economist expectations. However, the release of February’s jobs report on Friday provided mixed signals to investors. There was an increase of 311,000 non-farm jobs, well above consensus expectations of around 200,000. Conversely, the unemployment rate rose unexpectedly, from 3.4% to 3.6% and monthly wage growth slowed. As of Friday, markets were pricing around a 50% probability that the Fed will raise rates by 50bps at the upcoming meeting of the Federal Open Market Committee on March 21-22. Investors will now turn their attention to Tuesday’s highly anticipated inflation report for February which will be key to the Fed’s decision.
Wall Street’s sell off deepened following the failure of SVB Financial Group, which does business as Silicon Valley Bank. Shares of SVB tumbled 60% on Thursday, after launching a $1.75bn share sale to shore up its balance sheet which led to a rout across financial stocks and the broader market, with the four biggest US banks losing around $52bn in market value on Thursday. On Friday, regulators took control of Silicon Valley Bank, which held $209bn in assets at the time of its collapse, in what was the biggest bank failure since 2008 and the second-largest bank failure in US history after Washington Mutual which held $434bn in assets when it failed in 2008.
For the week, the S&P 500 lost 4.6%, posting its biggest weekly percentage decline since September. The index is now marginally up year to date by 0.6%. The Dow Jones recorded its worst weekly performance since June, falling 4.4% for the week, and is now down 3.7% in 2023. The Nasdaq lost 4.7% for the week but is up 6.4% year to date. The Cboe Volatility Index, the Wall Street “fear gauge”, closed at a three-month high, at 24.9.
European markets hit a seven-week low, weighed down by bank stocks as concerns spread globally over the sector’s financial health amid rising interest rates and the collapse of tech-focused lender Silicon Valley Bank. The pan-European STOXX 600 ended the week 2.3% lower, its worst weekly performance year to date. Banks recorded their biggest one-day fall in nine months on Friday, declining 3.8%. Notable names like HSBC and Deutsche Bank fell 5% and 7.4%, respectively, while Credit Suisse shares hit a new record low.
Chinese equities fell for the week after a lower-than-expected growth target of 5% for 2023 was announced. The Shanghai Composite Index lost 3%, posting its worst weekly loss in over two months, while the blue-chip CSI300 Index closed at a nine-week low. Hong Kong’s Hang Seng ended Friday at an eleven-week low, falling 6% for the week and recording its biggest weekly loss in over four months. Japan’s Nikkei bucked the global market trend, advancing 0.8% for the week despite having its worst day in three months on Friday after the Bank of Japan left its accommodative monetary policy unchanged in March, in its final meeting under outgoing Governor Haruhiko Kuroda.
Latin American markets recorded their biggest decline in five weeks on Friday with MSCI's index for stocks in Latin America losing 2.5%. Brazil's Bovespa lost 1.4% as the monthly inflation rate came in slightly higher than expectations at 0.84%, up from 0.53% in January. However, the annual inflation rate was 5.6%, down from 5.77% in January.
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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