Equities extend fall on risk-off sentiment

The war in Ukraine has tended to increase uncertainty regarding inflation and growth prospects. When and with what consequences this war will end is pure speculation, but capital markets are expected to build a certain immunity to the headline risks in the coming weeks. The medium- to long-term consequences, on the other hand, could be significant. It is possible that we are at the beginning of a new bloc formation or a new Cold War. This would put a significant damper on globalization and further fuel higher structural inflation. 

Major US equity indices see-sawed on Monday as concerns about the latest banking crisis increased and investors started pricing in the lower possibility of a rate hike by the Federal Reserve.  The Dow closed 90 points lower after gaining 200 points during the session and the S&P 500 lost 0.1%, while Nasdaq 100 added 0.4%.  Bank shares led the loss during the session while big tech and other growth equities gained.  Meantime, European equity markets tumbled to two-month lows yesterday, after the collapse of US lender Silicon Valley Bank sent European banks to their worst day in more than a year. 

Summary as at 14.03.2023 

• Asian equity markets fell on Tuesday, weighed down by losses in bank shares as the collapse of Silicon Valley Bank continued to reverberate across global markets.  Investors also braced for key US inflation data, which will be among the last major economic reports that the Fed will consider before next week’s policy meeting.  Shares in Australia, Japan, South Korea, Hong Kong and China all declined. 
• European shares are poised for a cautious start while US equity futures rose on Tuesday as investors look ahead to key inflation data, which will be among the last major economic reports that the Fed will consider before deciding on monetary policy next week. 

• Oil prices traded lower this morning, extending losses from the previous session as the collapse of Silicon Valley Bank raised concerns about a broader financial and economic crisis, triggering a selloff in risk assets.   Meanwhile, hopes for a recovery in Chinese demand a weaker USD kept a floor under prices. 
• Government bond yields extended their decline on Tuesday, as investors pared bets of higher interest rates and looked for safety.  The US 10-year Treasury yield fell to a five-week low of 3.5% and the 2-year yield lost nearly 50bps to 4.05%, marking the largest three-day slump since 1987.  In Germany, 10-year yield fell nearly 30bps to 2.17% and the UK Gilt was down to 3.27%. 
• Global financial equities have lost $465 billion in market value in two days as investors cut exposure to lenders from New York to Japan in the wake of Silicon Valley Bank’s collapse.  There are concerns that financial firms could see an impact from their investment in bonds and other instruments on the SVB-induced worry. 
• Nomura Securities expects the Federal Reserve to cut its benchmark interest rate by a quarter percentage-point and stop reducing the size of its balance sheet at its upcoming policy meeting next week.  Economists at Barclays have joined Goldman Sachs and Natwest in calling for a pause to the Fed’s monetary tightening campaign at the March meeting, while BlackRock Investment Institute analysts anticipate a 25 basis point hike. 
• US consumer inflation expectations for the year ahead fell sharply to 4.2% in February, the lowest since May of 2021, and compared to 5% in the previous two months.  Meanwhile, inflation expectations for the three-year horizon remained unchanged at 2.7% and increased by 0.1 percentage point to 2.6% at the five-year-ahead horizon. 

• Pfizer Inc. confirmed that after talks that began in February it has reached an agreement to acquire cancer drugmaker Seagen Inc. for $229 per share in cash in a transaction valued at about $43.0 billion.