Investors shifted their concern from lingering inflation and geopolitical frictions toward the health of the banking system, as fears of contagion exacerbated deposit flight.
GLOBAL MARKETS
US MARKETS
The markets whipsaw on the back of banking sector jitters
US equities had a mixed month but finished the quarter with a rally. Share prices tumbled mid-month as regional banks came under stress following the collapse of technology-focused Silicon Valley Bank (SVB) – the second largest banking failure in US history. They rallied on the coordinated intervention from global policymakers. Yields reflected this changing landscape, declining at the fastest rate for 30 years, and leading to a rally in fixed-income assets, as well as a headwind for the dollar. Manufacturing and services PMI’s improved but remained in contractionary territory, and the rate of inflation continues to slow. Up 3.5% (US 500)
UK MARKETS
Inflation remains stubbornly persistent
UK stocks declined through the month, with the events surrounding SVB in the US, as well as Credit Suisse in Switzerland, impacting financial services. Unsurprisingly the FTSE 350 Banks Index (-13.7%) led the decline alongside consumer-focused sectors. Manufacturing and services PMI’s have deteriorated, and growth expectations have lowered. Despite this, the Bank of England decided to increase the base rate by 25 basis points, as inflation moderates but at a frustratingly slow pace. This provided a headwind to relative fixed income performance and equities, but a tailwind to sterling, most notably versus USD. Down -3.4% (UK All Share)
EUROPEAN MARKETS
Europe underperforms on banking sector woes and ECB rate rise
Europe underperformed global equities, as Germany and France posted respectable returns, but southern states lagged. The most material event was the collapse of Credit Suisse mid-month, which led to a $17 billion loss for bondholders and a rout on European banking stocks – as fears of wholesale deposit withdrawals and collapsing balance sheets permeated. Services PMI’s have continued to improve while manufacturing declined during the month. A 50-bps hike by the ECB also provided support for the euro, which served as a headwind to risk assets in local currency terms. However, policy changes are beginning to take effect and inflation has moderated meaningfully in recent months. Down -0.7% (Euro 600 Index)
JAPAN MARKETS
Bond and stock markets trade higher
Both the Japanese equity and bond markets traded higher for a consecutive month, albeit while the Yen saw strength versus both developed and emerging currencies alike. Although not insulated entirely from global banking troubles, investors preferred to park capital in a safe-haven jurisdiction with lower sensitivity to the effected institutions. Month-on-month PMIs are improving alongside consumer confidence. Japanese headline inflation has also slowed as a result of the impact of government-sponsored energy subsidies, even though core inflation rose to 3.5% (the highest since 1982). The Bank of Japan decided to leave rates untouched, signalling the end of Governor Kuroda’s tenure. Up 0.5% (Japan Index)
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Jennifer Turner
