Calm has returned to global stock markets in recent days as concerns about the fallout from the failure of two major banks receded
Heavy losses were endured at the end of last week as investors feared possible contagion following the collapse of Credit Suisse.
However, news over the weekend that the bank had been taken over by domestic rival UBS helped to ease nerves, with regulators in numerous jurisdictions around the world emphasising that their financial systems were largely resilient.
A potential silver lining to the recent crisis could be that banks in general may become more reluctant to offer loans, thus aiding central bank’s efforts to bring inflation under control without the need for several more interest rate rises. While the Federal Reserve and the Bank of England hiked rates again this week, both did so by just 25 basis points. There is increasing speculation that the period of monetary policy tightening could be near its end – in the United States and United Kingdom at least.
On Wall Street, the Dow Jones Industrial Average ended trading on Thursday 0.8% up for the week so far, with the S&P 500 matching its performance. Investors in the US have struggled to decide whether the potential benefits of lower interest rates outweigh the higher level of risk currently associated with the financial sector. Appearing in Congress this week, Treasury Secretary Janet Yellen did her best to calm nerves by indicating that the Biden administration is likely to offer additional protection for bank deposits in the event of further turmoil – although it is not yet clear what form this might take.
In the UK, the FTSE 100 closed on Thursday 2.2% up for the week so far with relief over the resolution of the Swiss banking crisis driving gains on Monday and Tuesday in particular. As optimism about global growth returned, London-listed commodity businesses performed well, helped by a fall in the value of the dollar as interest rate expectations in the US fell back. Latest figures showed a surprise uptick in the rate of inflation in the UK in February, driven in part by rises in fresh produce costs following a shortage of imports from southern Europe. However, in announcing the latest interest rate increase, Bank of England officials said they expected the rate of price rises to ease in the coming months.
In Frankfurt, the DAX index ended Thursday’s session up 3% for the week, while France’s CAC 40 gained 3.1%. Both indexes recouped some of the losses experienced since the banking crisis began at the start of the month. Share prices were particularly volatile on Monday as investors tried to assess the UBS takeover of Credit Suisse, but a lack of further bad news helped to bolster sentiment as the week progressed. However, figures published on Thursday showed a surprise fall in consumer confidence in February.
In Asia, the Hang Seng index in Hong Kong gained 2.7% as investors welcomed a less turbulent few days on global markets. Technology stocks were especially strong as hopes of a slower pace of monetary policy tightening grew. Japan’s Nikkei 225 index of leading shares advanced 0.3%. This slight rise comes despite the index having slumped to a two-month low on Monday on banking sector concerns, although these dissipated in the days that followed. Strength in the motor manufacturing sector and among semiconductor firms also helped support market gains.
Hong Kong Hang Seng
Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, data as at 23 March 2023.