Bassanese Bites: Silicon Valley Bank: 4 critical questions for markets – March 13 2023
Global markets
Global equities suffered a setback last week, resuming the downtrend in prices which has been evident since stronger-than-expected US economic data and “no landing” fears began to upset investors at the end of January.
The week began with hawkish comments from Fed Chair Powell suggesting US rates may need to go higher than previously expected and opening the door to a potential return to 0.5% rate increases at the next policy meeting later this month. This naturally saw equities retreat and bond yields move higher. Notably, however, US 10-year bond yields barely budged while 2-year bond yields surged 13 basis points.
Friday’s payrolls result was a mixed blessing for markets – a much stronger than expected employment gain but a lift in the unemployment rate and a slightly softer than expected lift in average hourly earnings, with tentative signs of more workers returning to labour force.
That said, probably the biggest (surprise) event on Friday was the failure of Silicon Valley Bank (SVB), which hurt equities further but led to a strong safe-haven decline in bond yields (for more, see my special comments below).
Meanwhile, and of now somewhat secondary importance, Tuesday sees the release of the US February CPI, which is expected to show the monthly gain in core consumer prices remain at a still firm 0.4%. Annual core inflation is expected to slow only modestly from 5.5% to 5.4%. Subject to the SVB fallout such a result would keep the risk of a 0.5% Fed rate hike later this month very much alive.
