US equities weakened on Friday as concerns over stress in the financial sector weighed on sentiment ahead of a key week of economic data.
United States
US markets declined on Friday as investors feared a global decline in the financial sector. The S&P 500 closed -1.11% lower on Friday on broad based selling. The biggest laggard was the financial sector, declining -2.68%, followed by real estate falling -2.27% and industrials down -1.61%. The Dow shed -1.19%, the Nasdaq slid -0.74% while the Russell 2000 fell -2.56%. The yield on the US 10-year note sank by 15 basis points to 3.43%, while the VIX index jumped 10.96% to 25.51. Following the collapse of several regional US banks over the past week, concerns surrounding Credit Suisse were at the forefront of investors’ minds. However, we await to see how US equity futures begin trading this morning after a weekend deal was announced for UBS to buy Credit Suisse in a deal worth 3 billion francs, with the Swiss government and central bank providing significant guarantees and liquidity provisions as part of the deal. The rescue brings memories of the global financial crisis to the forefront of investors’ minds, although may be successful in alleviating concerns should recent announcements of support by governments, regulators, and central banks shore up confidence. Treasury yields continued to swing in volatile trade throughout the week, with the 2-year rate down -32 basis points on Friday along with the 10 and 30-year rates by -14.9 and 7.6 basis points respectively. The chart below highlights the increase in volatility across fixed income, measured by the ICE BofA Move Index.
ICE BofA Move Index
In economic data, the Michigan consumer sentiment index declined from 67 in February to 63.4 in March, revealing consumers were less optimistic about their future economic situation. Investors will be focused on the upcoming Fed meeting overnight on Wednesday when the central bank is expected to raise the interest rate by 0.25% from 4.75% to 5%. Concerns around the financial sector had previously seen a repricing down from a 0.5% rate to no hike, although now 0.25% appears likely and would signal the central banks’ confidence that recent measures to support banks will be effective, allowing the central bank to continue to tighten policy albeit at a more cautious pace.
Europe
In Europe, the STOXX 600 index closed -1.19. The rest of Europe mirrored similar declines after the ECB revealed a 50-basis point hike in interest rates last week. The CAC fell by -1.43%, the DAX lost -1.33% while the FTSE MIB declined by -1.64%. Ahead for the week, German and Eurozone ZEW economic sentiment for March is in focus on Tuesday followed by UK inflation data on Wednesday set to show headline prices eased to 9.8% from 10.1% for the 12 months to February. This will then be followed by a rate decision by the Bank of England on Thursday where economists and traders are now predicting a 0.25% increase. The week will be rounded off with Eurozone consumer confidence, UK retail sales, and PMI reports for March.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
Australia
The ASX is expected to open lower on Monday, as ASX futures were down 98 points or 1.4% to 6,921 although it remains to be seen how investors will react to the takeover of Credit Suisse. The ASX 200 rose 0.42% at the end of trading on Friday to close at 6994.8. In banking, NAB gained 1.7%, Commonwealth Bank rose 1.2%, ANZ was up by 0.4%, Westpac 0.2%, while Tyro Payments added 0.7%. Recycling company Close the Loop rocketed 21.2% after announcing it would acquire US electronics business ISP Tek Services for $99.7 million. Meanwhile, Link Administration added 3% after agreeing to sell off its banking and credit management division to LC Financial Holdings for $48.6 million. The yield on the 10-year Australian bond 6 basis points higher on Friday at 3.394% with the Australian dollar strengthening 0.62% to 0.6697 and is a further 0.22% higher this morning, an early indication of a pickup in risk appetite. In focus for investors is the release of the latest RBA policy minutes on Tuesday followed by the Westpac leading index for February on Wednesday while Thursday will bring services and manufacturing PMI reports for March.
Commodities
In commodities, oil prices fell with WTI and Brent crude falling -2.36% and -2.32% to US$ 66.74 and US$ 72.97 respectively. In precious metals, spot gold added 3.63% to US$ 1,989.25 while spot silver rocketed 4.17% to US$ 22.60. In industrial metals, copper firmed 0.72% to US$ 391, nickel firmed 0.57% to US$ 23,228, while SGX Iron Ore jumped 1.27% although is 0.99% lower this morning at US$129.50. Meanwhile, bitcoin jumped 3.30% to $US28,173.
Economic Data
20th March 2023
EUR: Balance of Trade (January) 9:00pm
21st March 2023
EUR: ECB President Lagarde Speech 1:00am
This article was written by James Woods, Portfolio Manager, Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3632.
