There's a more positive tone today, but is the banking crisis really over? Our head of markets looks at latest developments.
Another day without any unwelcome banking surprises lifted markets as investors headed back towards a risk-on approach.
Technology shares were a particular area of buying interest and have seen gains in anticipation of hopes that the interest rate hiking cycle may be nearing its end. In addition, chipmaker Micron Technology Inc (NASDAQ:MU) saw its shares rise by over 7% after stating that inventory issues were now improving. The rosy outlook statement added fuel to the fire of optimists, who read the news as being indicative that the overall economy was holding up, given that the company’s chips are used in a wide variety of industries.
In terms of the main indices, the Nasdaq has been the standout performer and currently stands ahead by 14% in the year to date.
Elsewhere, remarks to Congress by the US bank regulator appeared to lay the blame for the Silicon Valley Bank collapse at the door of the banking supervisors and their failure to spot the stresses, as opposed to a more systemic weakness within the system.
While sentiment currently remains on something of a knife-edge, no news will continue to be good news in terms of any further banking shocks. The so-called fear gauge, or volatility index, also returned to early March levels as a further indication of investor relief that the worst may have passed.
The next economic test comes on Friday, as the Federal Reserve’s preferred measure of inflation, the Personal Consumption Expenditures index, is released. The general expectation is for the number to have moderated further, although still remaining at levels which will suggest that the Fed’s aim of taming inflation has not quite yet been achieved. That being said, if the recent banking turmoil has resulted in tighter lending conditions from banks, this effect of further crimping growth could play to the Fed’s advantage in bringing the end of the hiking cycle in plain sight.
In the meantime and as the end of the quarter fast approaches, a torrid three months has had different effects on the main indices. While the Nasdaq has raced ahead, admittedly still far from erasing the investment pain of a 33% decline last year, the benchmark S&P500 which also has a notable tech focus has added 4.9%. The more traditional Dow Jones Industrial Average has struggled to hold onto its January gains and is now down by 1.3% in the year to date.
Technology optimism was also in evidence in Asian markets, where news of the announced break-up of the conglomerate Alibaba Group Holding Ltd ADR (NYSE:BABA) was warmly received. More broadly, investors were hoping that such a move could signal a lighter regulatory touch from the authorities on tech shares, at a time when China is keen to reinvigorate its economy with the lifting of Covid-19 restrictions and general economic support if needed.
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The increasing sense of calm also washed over to UK shores, with the main indices posting early gains. The FTSE100 opened marginally higher to leave the index ahead by 1.6% in the year to date, while the more domestically focused FTSE250 also gained but has yet to recapture its previous 2023 levels and remains down by a marginal 0.6%.
Despite the lessening turmoil and with UK banks having recovered some share price strength over recent days, the recent volatility has certainly left its mark. Since just before the Silicon Valley Bank announcement three weeks ago, Lloyds Banking Group (LSE:LLOY) shares have fallen by 7.8%, NatWest Group (LSE:NWG) by 9.8%, HSBC Holdings (LSE:HSBA) by 11%, Barclays (LSE:BARC) by 12.6% and Standard Chartered (LSE:STAN) by 22%. This particular road to recovery still has some way to go before the banks can be recognised once more as liquid and stable investment destinations.
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