Market Update Monday 3rd April 2023

Relative calm helped to lift equity markets, whilst haven assets gave back some of their recent gains.

Following weeks of stress in financial markets caused by the collapse of SVB and Signature bank in the US, culminating in the takeover of Credit Suisse by UBS in Switzerland to prevent a similar run on deposits, markets continued to consolidate and stabilise this week with most areas making gains. The swift action by regulators to protect both insured and uninsured depositors has, at least for the moment, brought some relative calm.

European inflation data benefits from weaker energy prices

Inflation data is being released this afternoon in the US which will help determine the future path of interest rates, which has led to the distress in the banking sector along with some questionable balance sheet management by some banks and a lack of regulatory oversight. European headline inflation data released this morning, whilst still high, moderated by more than forecasted, coming in at 6.9% for the year to March, against the previous reading of 8.5%. However, core inflation, i.e., excluding food and energy, was up by 5.7% for the year, an increase of 0.1% over the previous month’s reading. Whilst the US Personal Consumption Expenditures index, the Federal Reserve’s preferred measure of inflation, is forecast to fall to 5.1%, but core inflation is expected to remain stable at 4.7%, still sharply above the 2.0% target.

As of 12pm on Friday, London time, US equities rose 2.0% over the week, with the US technology sector increasing by 1.6%. European stocks rose by 3.8% and UK equities climbed by 3.0%. The Japanese market rallied 2.5% and Australian stocks rose by 3.2%. The Emerging markets increased by 1.4%.

Government bonds, having rallied during the last few weeks as a safe asset, continued to give up some of their gains with yields, which move inversely to price, rising. 10-year US Treasury yields are now yielding 3.55%, whilst German bunds are trading at a yield of 2.36% and UK gilts 3.55%.

Crude oil stages a rally as recession fears abate

Gold, also a haven asset, gave back a little of its recent gains but still remains close to its near term high, now trading at $1,998 an ounce, having been as high as $2,013 last week. Crude oil has benefitted from the stabilisation in markets, with Brent crude increasing by 5.7%, now trading at $79.5 a barrel.

Whilst the Yen and the Dollar weaken as calm returns to markets

In currency markets, both the US Dollar and the Japanese Yen, which often benefit during times of stress, weakened. The US Dollar index, which measures the strength of the Dollar against a basket of currencies, fell by 0.7%, with Sterling now trading at $1.238 and the Euro $1.087. The Yen weakened by over 3% versus both Sterling and the Euro.