Blog: Silicon Valley Bank: US stock market rallies and regional bank shares surge – business live – The Guardian

Introduction: Bank share sell-off spreads to Asia as SVB collapse shakes markets

Good morning.

The collapse of Silicon Valley Bank is gripping the financial markets, as global bank shares slide despite reassurances from President Joe Biden on Monday.

There have been fresh losses in Asia-Pacific stock markets today, as bank stocks continues to fall.

Japan’s Topix Banks index is on track for its worst day since March 2020, early in the pandemic, currently down 7.4%. Mitsubishi UFJ Financial Group is down 8.66%, with Mizuho Financial Group losing 7.1%

This has pulled Japan’s Topix index down by 2.7%.

Elsewhere, Hong Kong’s Hang Seng index has dropped by 2.35%.

South Korea’s KOSPI index has lost 2.4%, with its Hana Financial Group down almost 4%. Australia’s S&P/ASX is down 1.4%.

Stephen Innes, managing partner at SPI Asset Management, says:

The collapse of Silicon Valley Bank on Friday has brought on the highest volatile market conditions of 2023 so far.

Shares in a number of America’s regional banks closed sharply lower on Monday night, hours after president Joe Biden tried to reassure depositors and investors, saying:

Americans can rest assured that our banking system is safe.

Your deposits are safe.

‘Banking system is safe’: Biden reassures markets after Silicon Valley Bank collapse – video

On Sunday night, the Federal Reserve and Treasury boosted lenders’ access to quick cash, and guaranteed deposits at Signature Bank (which was closed down on Sunday night) and Silicon Valley Bank.

But other regional banks still came under pressure, with San Francisco-based First Republic losing 62% and Arizona-headquartered Western Alliance Bank off 47%.

On Monday, there were heavy falls on European stock markets, with the UK’s FTSE 100 index sheddding 200 points, or 2.58%, to end at 7548 points, the lowest since the start of January.

Markets are expected to open calmer today, though….

Silicon Valley Bank’s collapse last week was the largest bank failure in over a decade.

It came after SVB made a $1.8bn loss on a sale of securities, due to the drop in prices of government bond and mortgage-backed securities as interest rates have risen. That left it struggling to meet withdrawal requests from customers.

Expectations of further sharp rises in borrowing costs are being reassessed too, with central banks likely to be warier of breaking another part of the financial system.

Yesterday was “a wild session on Wall Street as the failure of Silicon Valley Bank revealed the unintended consequence of the Fed’s tightening cycle”, says IG analyst Tony Sycamore:

As noted in recent months and in wider financial circles, the Fed has historically continued tightening until something breaks.

While the Fed’s move to backstop uninsured deposits will likely prevent further banking runs, a potential banking crisis threat trumps high inflation any day of the week.

Reflecting this, the rates market experienced the most significant 2-day fall in U.S. treasury yields since the 1987 crash (yields are now at 4% from 5.08% last week). After being 70% priced for a 50bp rate hike last week, there is now just 12bps priced for next week’s FOMC meeting.

The agenda

  • 7am GMT: UK unemployment report

  • 8am GMT: European finance ministers hold an ECOFIN conference

  • 10.15am GMT: MPs hold hearing on “Prepayment meters: warrants and forced installations”

  • 12.30pm: US CPI inflation report for February

Key events

Back in the UK, MPs are to hold a hearing on the collapse of Silicon Valley Bank later this month.

The Treasury committee will quiz the Bank of England on Tuesday 28 March, and examine ask why SVB UK had to be rescued by HSBC on Monday morning.

The committee has also written to the BoE, asking for details about how SVB UK was supervised before its collapse – including the resource allocated to it, the decision to choose HSBC as a purchases, and what lessons can be learned.

Harriett Baldwin MP, Chair of the Treasury Committee, says:

“This deal is the best possible outcome achieved in incredibly challenging circumstances. We thank everyone who worked tirelessly to achieve this deal.

“Yet, while it’s reassuring that taxpayer funds were not required in this instance, a number of questions remain around the effectiveness of bank regulation and resolution procedures, especially for smaller banks with a significant presence in strategically-important industries. It is important that we reflect on the lessons from this episode to ensure that the post-financial crisis regime to avoid bailouts remains strong.”

Meta shares jumps 6% as more job cuts announced

Shares in Facebooks owner, Meta, have jumped almost 6% after it announced plans to lay off another 10,000 workers.

This is the second round of significant job cuts announced by the tech giant in four months. It is also instituting a further hiring freeze as part of the company’s “Year of Efficiency”.

In a Facebook post today, CEO Mark Zuckerberg said the job cuts will take place “over the next couple of months.”

Zuckerberg wrote:

“We expect to announce restructurings and layoffs in our tech groups in late April, and then our business groups in late May,”

In a “small number of cases”, it may take through the end of the year to complete these changes, Zuckerberg says, adding:

“Overall, we expect to reduce our team size by around 10,000 people and to close around 5,000 additional open roles that we haven’t yet hired.”

Here’s the story:

Meta’s shares have jumped 5.5%, or $10, to $191, the highest in over a month.

Scholz plays down threat of SVB meltdown to Germany

German chancellor Olaf Scholz has said today that Germans should not have major concerns about the fallout of Silicon Valley Bank’s collapse.

Scholz said regulators had learned lessons from the global financial crisis in 2008, speaking in Berlin aongside Ilham Aliyev, the President of Azerbaijan.

The tech-focused Nasdaq index has jumped 2% in early trading, as the Wall Street rally gathers pace.

US stock market opens higher, as regional banks surge

The US stock market has jumped at the start of trading, as bank stocks mounted a comeback from Monday’s heavy losses.

The Dow Jones industrial average has gained 1%, up 314 points at 32,133 in a flurry of buying.

The broader S&P 500 index has gained 1.5%, as investors cheer the slowdown in US inflation last month.

And after a brutal day yesterday, US regional banks are bouncing back in early trading, as concerns over their financial health ease.

San Francisco-based First Republic’s shares have surged 57%, back to $49.28. On Monday it fell 62%, from $81 to $31.

Western Alliance Bancorp, of Phoenix, Arizona has gained 52%, while Los Angeles-based PacWest has jumped 55%.

Zions, of Salt Lake City, Utah, has gained 22%.

However, Ronald Temple, chief market strategist at Lazard, argues that US interest rates will actually rise higher than forecast:

“This is exactly the inflation print the Fed did not want. The elevated core inflation in February adds to the evidence of economic strength from last week’s job numbers, signalling the need for tighter monetary policy.

But asset liability management challenges for some banks might limit the latitude to tighten in the near term. Despite banking challenges, persistent inflation means markets are likely wrong to expect rate cuts this year.

The economy remains strong, and the Fed will likely need to hike rates further and keep them higher for longer than markets are currently pricing.”

Bank shares in London have turned higher too.

Barclays are up 4.6% and Lloyds Banking Group have jumped 3%, among the top risers on the FTSE 100 today.

European stock markets are now rallying, as investors are cheered by the fall in US inflation last month.

The UK’s FTSE 100 index has gained 42 points, or over 0.5%, to 7590 points, having been broadly flat before the inflation report hit the wires.

That recovers about a fifth of Monday’s selloff.

Germany’s DAX has gained 1.6%, while France’s CAC is 1.4% higher.

This suggests that the slowdown in price rises across America last month bolsters expectations of a smaller interest rate rise this month, of 25 basis points.

Neal Keane, head of sales trading at the international brokerage ADSS, reckons the US Federal Reserve is still likely to raise interest rates again, despite slowing inflation and the collapse of two banks in recent days.

Keane writes:

“Headline figures show a notable decrease in annual CPI to reach 6% – but with the core rate falling to only 5.5% and MoM inflation rising 0.4%, this piece of the rate hike puzzle will offer little to convince the Fed to pause rate increases in the near term.”

The collapses of Silicon Valley Bank and Signature will “undoubtedly weigh on the Fed’s mind”, with opinion divided on whether it should pause rate hikes immediately, Keane adds:

On balance, a hike of 25bps [a quarter of one percent] still looks the more likely scenario, with further hikes still possible while inflation continues running too high at current levels.”

Gerrit Smit, manager of the $1.7bn Stonehage Fleming Global Best Ideas Equity fund, says investors will be cheered that US inflation continues to fall:

Smit predicts it will allow the Fed to raise its headline interest rates by another quarter-point next week:

Headline inflation dropped to 6.0% as expected, lower than many fears of very sticky inflation.

This is a welcome reprieve, and we can expect the Fed to continue on its +25bps pathway despite the SVB scare.”

The US inflation report puts the Federal Reserve in a ‘somewhat tricky position’, says John Leiper, chief investment officer, Titan Asset Management.

Although the rate of price increases slowed, the Fed will want to get inflation down towards its 2% target by raising interest rates again.

However, the collapse of Silicon Valley Bank shows the impact of its previous rate rises, and the risks from tightening policy quickly.

Leiper says:

“It’s been an eventful week for markets and today’s inflation print doesn’t change that. Headline inflation came in-line with expectations although core inflation picked-up slightly month-on-month. This keeps the Fed in a somewhat tricky position.

The Fed cannot fall behind the inflation curve, its credibility is at risk if it does, but equally the lagged impact of prior tightening is now starting to show its face, as evidenced by the recent Silicon Valley Bank failure. This remains a delicate balancing act for Jerome Powell and markets won’t like the ongoing uncertainty.”

US inflation rate lowest since 2021

At 6.0% last month, annual US inflation is the lowest since September 2021.

The core inflation rate (which excludes food and energy) was the lowest since December 2021 at 5.5% per year.

Energy prices increased 5.2% in the 12 months to February, while the food index increased 9.5% over the last year.

US inflation rate falls, but shelter costs keep rising

Newsflash: US inflation has eased, but still remains sharply above the Federal Reserve’s target.

The consumer prices index in America slowed to an annual rate of 6.0% in February, down from 6.4% in January.

That matches economists expectations, and means inflation is running three times above the Fed’s target of 2%.

Core inflation eased a little, to 5.5% from 5.6%.

During February alone, inflation was 0.4%, a slowdown on the 0.5% increase in the CPI in January.

The index for shelter was the largest contributor to inflation in February, accounting for over 70% of the monthly increase, with the indexes for food, recreation, and household furnishings and operations also contributing.

The food index increased 0.4% over the month with the food at home index rising 0.3%.

But energy prices eased by 0.6% during the month, helped by falling prices of natural gas and fuel oil.

Economics professor Ricardo Reis has written a very interesting thread about the implications of the SVB collapse for the US Federal Reserve’s interest-rate-hiking cycle.

European bank shares have shaken off their earlier losses.

The European Stoxx banks index is now up 0.3% today, a small recovery after its biggest falls in a year.

Credit Suisse has recovered some ground – its share are now 1.7% today, having dropped over 4% at one stage this morning.

Credit Suisse Group chief executive Ulrich Körner told Bloomberg TV this morning that the bank has seen inflows of client funds on Monday, as the collapse of Silicon Valley Bank rocked the financial markkets.

Körner said:

We got inflows yesterday, which is a positive sign I would say.

We even saw materially good inflows yesterday.”

In the UK supermarket sector, Sainsbury’s is buying back the freehold on 21 of its supermarkets in a £431m deal.

Analysts said the deal, which unwinds a sale and leaseback joint venture, gives Sainsbury’s fewer liabilities and more control over its assets as it faces higher costs and tightening consumer spending.

Sainsbury’s said it wanted to sell and lease back a further four stores which were part of the joint venture while one vacant store would be sold outright.

UK banks not seeing deposit ‘flight to quality’ after SVB collapse – Lloyds CEO

British banks are not yet seeing a “flight to quality” in deposits among customers nervous about the safety of their money following the collapse of Silicon Valley Bank last week, Lloyds chief executive Charlie Nunn has said today.

Nunn told a Morgan Stanley event today (via Reuters) that:

“What’s happened with SVB is relatively idiosyncratic compared to the UK”

As covered at 9.03am, major US banks including JPMorgan and Citigroup have seen a wave of customers applying to shift their accounts to larger lenders.

Nunn doesn’t see signs that this is happening in the UK, though, saying:

“We haven’t seen what we’ve seen in the US, which is the flight to quality.

“But let’s see how that plays out and we’ll see how people feel over the next period of time.”

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