Markets close lower as banking shares take a beating

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. 

US equities declined on Thursday to close out a choppy session, adding to weekly losses that followed this week’s hawkish Congressional testimony from Fed Chairman Jerome Powell.  A larger-than-expected increase in weekly initial jobless claims seemed to offer a modest reprieve from the concerns about how aggressive the Fed may be.  The Financial sector saw pressure, as SVB Financial plummeted after selling securities for a loss, and Silvergate Capital dropped after announcing that it would shut down its bank operations and liquidate.  As a result of the turmoil in the sector, the shares of numerous banks declined.  The Dow Jones Industrial Average decreased 1.7%, the S&P 500 Index fell 1.9%, and the Nasdaq Composite was down 2.1%.  Meantime, European shares managed to avoid the brunt of the sell-off, with markets in the region ending only marginally lower, led by losses in mining shares.  

Summary as at 10.03.2023 

• Asian equity markets fell on Friday, as investors await the closely watched February non-farm payrolls report from the US that could further determine the direction of the Fed Reserve’s rate hikes ahead.  The Hang Seng fell 2.4%, leading losses in the region.  In mainland China, the main indices were down over 1% as China’s Xi Jinping formally secured an unprecedented third term as president.  The Nikkei 225 in Japan shed 1.3% as the Bank of Japan held its interest rates at –0.1%, widely in line with expectations. 
• European shares are set to join a global stock rout on worries that signs of trouble in the US banking sector could lead to broader risks.   

• Oil prices fell further this morning and were set to drop more than 5% this week, weighed down by fears that the US Federal Reserve will raise interest rates further to combat inflation, increasing recessionary risks that could dampen energy demand.  OPEC Secretary-General Haitham Al-Ghais echoed such concerns, saying weakening oil consumption in the US and Europe could threaten the market. 
• Chinese lawmakers unanimously voted to give Xi Jinping a third term as president Friday, completing his ascension to the supreme leader of the world’s No. 2 economy. Xi won the vote in the National People’s Congress, officially giving him five more years in power and demonstrating his unrivaled grip over the ruling Communist Party. The balloting was largely procedural since Xi secured his status atop the party that dominates politics in China at a major congress in the fall. 
• Weekly initial jobless claims in the US came in at a level of 211,000 for the week ended March 4, above the consensus estimate of 195,000 and the prior week’s unrevised 190,000 level.  The four-week moving average grew by 4,000 to 197,00, and continuing claims for the week ended February 25 increased by 69,000 to 1,718,000, north of estimates calling for 1,660,000.  The four-week moving average of continuing claims rose by 9,500 to 1,679,500. 
• Shares of US-listed SVB Financial Group plummeted after announcing a $1.75 billion share sale as it looks to raise more cash.  The company said that it sold “substantially all” of its available-for-sale securities, which will result in a post-tax loss.  Additionally, crypto-focused bank Silvergate Capital Corp dropped after announcing a shutdown in bank operations and voluntary liquidation.  The turmoil in the Financials sector caused banks across the US to decline, with JPMorgan, Bank of America, and Wells Fargo all tanking more than 5%. 
• American Express Company announced that its board has approved the repurchase of up to 120 million common shares, replacing the current buyback plan that had 36 million common shares remaining.  Additionally, the company increased its quarterly dividend by 15% to $0.08 per share. 

• General Electric Company rallied yesterday after the company offered an update on its long-term targets, highlighting expected profit margin expansion and mid-to-high single-digit revenue growth at its soon-to-be separated aviation unit.  GE also said it expects its combined power-equipment and energy unit, to be named GE Vernova after next year’s split, to deliver sales growth in the mid-single-digits and a high single-digit profit margin.  The company also reaffirmed its 2023 guidance. 
• Deutsche Post increased its dividend for 2022 by €0.05 to €1.85 when it reported record profits yesterday, expanding its share buyback program but flagging a challenging year ahead.  Outgoing CEO Frank Appel even curbed his medium-term business forecast: an operating profit of more than €8 billion, as in 2022, is not in sight again until 2025.