Global stock markets have endured a highly turbulent week after fears of a new banking crisis emerged
The collapse of the Silicon Valley Bank which served the high-growth startup sector at the end of last week (10 March) sparked steep falls on Wall Street. Further losses were seen on markets around the world at the start of this week (13 March) after a number of other smaller US-based lenders were reported to be in serious trouble.
Sentiment recovered after US regulators stepped in to guarantee customer deposits and reassure investors about the health and resilience of the nation’s financial system. However, subsequent concerns about the viability of Credit Suisse led to further losses in Europe in particular, before Switzerland’s central bank intervened with a support package worth $54 billion (£45 billion).
A number of analysts have pointed to sharp increases in interest rates over the past 12 months as the main reason some institutions are struggling to stay afloat, and there has been speculation that recent events could force the Federal Reserve and other central banks to limit future rate hikes.
On Wall Street, the Dow Jones Industrial Average ended trading on Thursday 1.1% up for the week so far, with the S&P 500 closing 2.6% ahead. Both indices remain some way below the levels seen earlier this year, but the heavy losses endured last Friday were recovered after regulators moved quickly to calm fears of contagion. Share prices made additional gains on Thursday after a group of major US banks joined forces to help shore up the balance sheet of another struggling lender. Technology stocks benefited over the course of the week as expectations of future interest rate rises receded, while many investors have seen major tech companies as a safe haven during the financial-sector turmoil.
In the UK, the FTSE 100 closed on Thursday 4.4% down for the week so far, with share prices in London hit by nervousness about the global banking system and the resulting sharp declines in commodity prices. A rise in the value of sterling against the dollar, which weakened on the prospect of the Fed slowing the pace of monetary policy tightening, also impacted the UK’s multinational businesses. There was some good news, however, as chancellor of the exchequer, Jeremy Hunt, said the British economy was no longer expected to enter recession in 2023 during his Budget speech on Wednesday.
In Frankfurt, the DAX index ended Thursday’s session down 3% for the week, while France’s CAC 40 lost 2.7%. Concerns about the health of one of Europe’s biggest banks dominated sentiment on Wednesday, with European markets suffering their steepest falls in more than a year as a result. However, decisive intervention by regulators prompted a recovery on Thursday, with investors seemingly relaxed about the European Central Bank’s decision to raise interest rates again, by 50 basis points, as it battles to bring eurozone inflation under control.
In Asia, the Hang Seng index in Hong Kong dipped 0.6%, with concerns about the global financial system partly offset by positive news about the Chinese economy. Although factory activity grew at a slower pace than expected last month, retail sales were strong and transactions in the residential property market also came in ahead of forecasts. Japan’s Nikkei 225 index of leading shares, meanwhile, closed 4% lower with concerns about the nation’s foreign bond holdings and banking sector profitability to the fore. Share prices in Tokyo were also hit by the strengthening yen.
Hong Kong Hang Seng
Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, data as at 16 March 2023.