Week 10 in Brief
North America
Wall Street’s indexes have closed lower with investors running for the exits as they stressed out about the health of US banks after regulators closed a high-profile lender to the technology sector.
Tech-focused lender Silicon Valley Bank shut down following losses in its bond portfolio, prompting the biggest bank failure since the global financial crisis and sending shockwaves through the banking sector.
Stocks closed sharply lower and Treasury yields extended their slide on Friday over fears of contagion in the financial sector and strong February employment data showing the economy added more jobs than expected.
How did the major indices perform?
On Friday:
- The Dow Jones Industrial Average ended 345.22 points lower, or 1.07%, to close at 31,909.64.
- The S&P 500 lost 1.45% to settle at 3,861.59.
- The Nasdaq Composite shed 1.76% to end at 11,138.89.*
For the Week:
- The Dow fell by 4.44%.
- The S&P 500 dropped 4.55%,
- The Nasdaq lost 4.71%.
What Drove the U.S. Market?
- U.S. deficit grows to $262 billion in February as tax refunds surge
- Crypto-focused bank Silvergate announced on Wednesday that it will wind down operations and liquidate its bank.
- Several banks, including First Republic, PacWest, and crypto-focused Signature Bank, were repeatedly halted on Friday. First Republic dropped 14.8%, and PacWest shed 37.9%. Some bellwether bank stocks suffered smaller losses even as SVB’s fallout wreaked havoc on regional names. Goldman Sachs and Bank of America fell 4.2% and 0.9% respectively. JPMorgan held onto a 2.5% gain.
- The Labor Department said the US economy added 311,000 jobs last month, much higher than expectations of 205,000 in a Bloomberg survey of economists. But wage growth slowed to 0.2% from January’s 0.5% pace, curbing expectations the Federal Reserve will upsize its March interest rate hike to 50 basis points.
- Yellen warned U.S. House members of ‘economic collapse’ from the default
- Fed is now under less pressure to speed rate hikes as wage gains cool
- Strong US job growth persists; wage inflation shows signs of a slowdown. Some analysts said the U.S. economy added jobs in February, average hourly earnings rose 0.2% last month after gaining 0.3% in January, while the unemployment rate rose to 3.6%.
How Did the European Markets Perform?
- European markets closed lower Friday, led by a sell-off in the banking sector. The pan-European Stoxx 600 index provisionally ended the session down 1.5%, with all sectors and major bourses in negative territory. The U.K. economy grew by 0.3% in January, official figures showed on Friday, exceeding expectations as it continues to fend off what economists see as an inevitable recession
- Germany’s DAX index will be 201 points lower at 15,437.
- Daimler Truck shares down on lower earnings despite positive outlook. Shares in the company fell 6%, the second-biggest drop in the German benchmark DAX index, after the company reported fourth-quarter sales and profits below expectations.
- The European banking index.SX7P hit a six-week low after U.S. tech-industry lender SVB Financial Group SIVB.O launched a share sale to shore up its balance sheet due to declining deposits from startups struggling for funding. Bank stocks led losses, down 3.9%, followed by financial services, which lost 2.8%.
- France’s CAC will be at 7,216 points at the market open, down 100 points, while Italy’s MIB will be 434 points lower at 27,279.
How did Asian Markets Perform
- The Hang Seng index in Hong Kong saw sharp losses on Friday morning, led by consumer cyclical that fell 3.77%, healthcare stocks shed nearly 3% and technology stocks dropped 1.56%.
- JD.com fell 11.04% while Geely Automobile shed 5.49%. BYD lost 5.2% and Baidu shed 4.94%.
- Property stocks such as Country Garden also saw huge losses down 2.73%.
- Alibaba was among the leading bottom movers, falling 2.96%.
- Japan’s Nikkei 225 fell 1.67%, the Shanghai Composite Index lost 1.4%, the Shenzhen Component declined 1.19% and Hong Kong’s Hang Seng Index ended the day 3.04% lower, its lowest close in 11 weeks.
- Asian equity markets weakened, mirroring Wall Street’s overnight downtrend, amid mounting concern that the U.S. The Fed’s key interest rate will end up higher than expected, combined with a tighter U.S. labor market.
Bonds and Commodities
- Brent rose $1.19, or 1.5%, to $82.78 a barrel.
- U.S. West Texas Intermediate crude was up 96 cents, or 1.3%, at $76.68.
- Gold gained 1.8% to $1,869.30 per ounce.
- The 10-year Treasury yield tumbled 22 basis points to 3.69%.
- Gold prices edged up but headed for a weekly fall on Friday as prospects of further interest rate rises dented its allure, while traders awaited a U.S. non-farm payrolls report due later in the day.
- Spot gold was up 0.3% at $1,836.18 per ounce. Prices have fallen more than 1% this week.
- U.S. gold futures also rose 0.2% to $1,838.70.
Currencies
- The euro ticked up 0.33% on the day, while the U.S.
- The dollar slid from its recent high versus the Japanese yen on Friday, its largest weekly loss since mid-January against a basket of six major currencies.
- The rupee settled six paise lower from its previous close on Friday at 82.04 vs the US dollar.
- Bitcoin fell by 7.96% on Friday.
Next Week
A critical inflation report next week will test a U.S. stock market already consumed by worries over Federal Reserve hawkishness and potential fallout from the most significant bank failure since the financial crisis. However, Signs of a resilient U.S. economy are boosting the appeal of semiconductor stocks, even as worries over the Federal Reserve’s monetary policy tightening weigh on the sector along with the broader market.
While the inflation report will get the majority of the attention, traders should also pay close attention to the February retail sales data which should show consumer spending is weakening. Housing data is expected to remain weak, while a couple of Fed regional surveys (Empire/Philly) should show manufacturing data remains deeply in contraction territory. Friday’s release of consumer sentiment is expected to hold steady, while many traders will pay close attention to see if inflation expectations continue to retreat.
The Fed’s blackout season is on the horizon.