Global Markets Report - 16 March

Australia

The Australian sharemarket is expected to decline today following a broad selloff in bank stocks. Shares of Switzerland’s Credit Suisse plunged as the SVB crisis reverberated around the world. 

ASX futures were tracking global losses, down 119 points or 1.7%, as of 7:00am Thursday.

Fallout from the banking storm spread across stocks, bonds and commodities Wednesday as investors fled to the relative safety of the US Treasury market.

The S&P 500 dropped 0.7% and the Dow Jones Industrial Average shed 0.9%. The Nasdaq Composite index closed flat.

Investors piled into government bonds, which dragged the yield on 10 Year US Treasury notes lower.

The selling that had been mostly contained to US stocks is broadening on the risk that turmoil in the banking sector could tip the US economy into the recession that analysts have been predicting for over a year. The market's obsession with inflation and whether the US Federal Reserve will raise interest rates by a quarter or a half-point have been eclipsed by the new fear.

In commodity markets, Brent crude oil lost 3.8% to $US74.48 a barrel while gold lost 0.8% to US$1,918.84.

The yield on 2 Year Australian government bonds edged higher to 3.10% while the 10 Year yield dipped to 3.43%. Yields on US Treasury notes remained lower, with the 2 Year down to 3.91% and the 10 Year at 3.50%.

The Australian dollar backtracked to 66.18 US cents from its previous close of 66.81. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies, inched up to 97.72.

Asia

Chinese shares finished mixed as investors sifted through more economic data following Beijing's repeal of its zero-Covid policy. The figures, which included industrial output, housing prices and retail sales, showed broad improvement, but shrinking exports and a still-fragile property sector also point to some weak spots in the country's recovery, Nomura economist Lu Ting said in a research note. Property and insurance companies led the day's gains. China Vanke rose 0.7%, Gemdale Corp. added 0.8% and Ping An Insurance climbed 1.1%. Software and telecom companies were among the laggards. Beijing Kingsoft dropped 4.3% and China Telecom lost 1.8% amid recent volatility. The benchmark Shanghai Composite Index rose 0.55% to 3263.31, the Shenzhen Composite Index added 0.3% and the ChiNext Price Index fell 0.2%.

Hong Kong's benchmark Hang Seng Index closed 1.5% higher at 19539.87, after a slew of Chinese data showed further signs of economic recovery. "The economic data released today confirmed the recovery in China was well on track," said Zhang Zhiwei, chief economist at Pinpoint Asset Management, in a note. HSBC rose 2.9% and Standard Chartered was up 2.1%, both reversing Tuesday's losses. Tech companies also outperformed the market with the Hang Seng Tech Index up 2.0%. Baidu rose 3.6% and Alibaba Group advanced 2.6%. Consumer stocks were among laggards. Haidilao International dropped 2.3% and Chow Tai Fook Jewelry fell 0.9%.

The Japanese Nikkei Stock Average gave up early gains to end flat at 27229.48, as investors continued to digest the latest economic data from China and the U.S. Concerns persisted regarding the recent failure of Silicon Valley Bank. Railway stocks declined, with East Japan Railway slipping 2.4%, West Japan Railway falling 1.3% and Central Japan Railway dropping 1.8%.

India's benchmark Sensex index closed 0.6% lower at 57555.90 despite most Asian equity markets following Wall Street higher. ICICI Securities analysts said in a note that investors are likely focusing on bargain buying opportunities and will keep a watchful eye on whether the U.S. Federal Reserve will pause the pace of its rate increases to support the banking sector. Decliners in the index included Bharti Airtel, which shed 2.0%, while IndusInd Bank declined 1.85% and Reliance Industries fell 1.7%. Asian Paints was among the gainers, adding 3.0%.

Europe

European stocks tumbled amid continued investor jitters regarding the potential impact of the collapse of Silicon Valley Bank on the global banking system. The pan-European Stoxx Europe 600 dove 3.0%, the German DAX plunged 3.3%, and the French CAC 40 retreated 3.6%. Banks dominated losses throughout the continent, led by Switzerland’s Credit Suisse, which shed 24%.

The United Kingdom’s FTSE 100 sank 3.8%. Prudential, Glencore and Barclays were the day's biggest fallers, down 12%, 11%, and 9.1% respectively. United Utilities and Haleon both added 1% while Unite gained 0.4%.

"Credit Suisse stock is plunging today as the fallout from the SVC collapse continues," John Leiper, chief investment officer at Titan Asset Management, wrote. "We remain concerned that these ripple effects will continue to spread across the economy and [we] retain a defensive exposure at this time."

North America

Fallout from the banking storm spread across stocks, bonds and commodities Wednesday as investors fled to the relative safety of the US Treasury market.

The S&P 500 dropped 0.7% and the Dow Jones Industrial Average shed 0.9%. The Nasdaq Composite index closed flat.

Investors piled into government bonds, which dragged the yield on 10 Year US Treasury notes lower.

The selling that had been mostly contained to US stocks is broadening on the risk that turmoil in the banking sector could tip the US economy into the recession that analysts have been predicting for over a year. The market's obsession with inflation and whether the US Federal Reserve will raise interest rates by a quarter or a half-point have been eclipsed by the new fear.

"It has all the signs of a panic in the stock market and it has all the signs of panic in the bond market," said David Kotok, Chief Investment Officer at Cumberland Advisors. If risk premiums start to surge in corporate and mortgage-bond markets, that will likely set off another leg of selling in stocks, he said.

Efforts by US officials and regulators to stop Silicon Valley Bank's collapse from spilling over into the financial system appeared to have stabilized markets Tuesday. Nonetheless, the selloff in stocks and hunt for safe assets began again Wednesday, showing that investors remain on edge about the potential for tremors in the global banking system.

The Labor Department said Wednesday that US supplier prices fell in February from a month earlier, a possible sign of easing in inflationary pressures. The producer-price index, which generally reflects supply conditions across the economy, fell 0.1% in February from the prior month, compared with a downwardly revised 0.3% increase in January.

The focus of investor angst shifted to Europe, where shares of Credit Suisse plunged 24.2. Amid concerns that difficulties at the bank could spread to other lenders, shares of French banks Société Générale fell 17%, while BNP Paribas and Germany's Commerzbank lost about 8%.

Meanwhile, a rally in regional US banking stocks ran out of steam. First Republic Bank, whose shares tanked after investors zeroed in on attributes the San Francisco-based lender shared with SVB, fell 18%. S&P Global Ratings pushed the bank's bonds into junk-debt category by downgrading them four notches to double-B-plus.

"We believe the risk of deposit outflows is elevated at First Republic, despite actions by federal regulators," S&P said in a statement. The ratings firm is keeping First Republic on negative credit watch, indicating a relatively high risk of future downgrades.

Some of the nation's biggest banks also declined, including Citigroup and Wells Fargo, both down more than 3%.