Our head of investment rounds up the morning's big news.
Negative momentum from last night’s sell-off on Wall Street has permeated across global markets, with European indices opening lower. Banks like Lloyds Banking Group (LSE:LLOY), Barclays (LSE:BARC), NatWest Group (LSE:NWG) and Standard Chartered (LSE:STAN) are trading at the bottom of the FTSE 100, while Frankfurt listings of the major Wall Street lenders continue to face selling pressure today. On the continent, Deutsche Bank AG (XETRA:DBK), Commerzbank AG (XETRA:CBK), Banco Santander SA (LSE:BNC), and Credit Suisse Group AG (SIX:CSGN) are all down by more than 5% each.
The major Wall Street lenders fell sharply on Thursday, with more than $52 billion eroded from the four largest US banks, JPMorgan Chase & Co (NYSE:JPM), Bank of America Corp (NYSE:BAC), Citigroup Inc (NYSE:C) and Wells Fargo & Co (NYSE:WFC), in the biggest one-day drop in almost three years. This came amid concerns about Silicon Valley Bank, which launched a $1.75 billion share sale and revealed a $1.8 billion loss after selling a portfolio of bond securities worth $21 billion in response to a drop in customer deposits.
Shares in SVB Financial Group (NASDAQ:SIVB) plunged more than 60%, wiping $80 billion off its market cap with a 22% after-hours slide. First Republic Bank (NYSE:FRC) also fell sharply, with a double-digit percentage slump amid the fallout for the sector. The S&P 500 banks sector fell by more than 6.5% and the VIX, Wall Street’s so-called fear gauge surged more than 18%.
All eyes are on the US jobs report at lunchtime with nonfarm payrolls expected to rise 225,000 in February, a sharp decline from January’s gain of 517,000. However, an upside surprise could be bad news for markets as it could embolden the Fed to carry out a more aggressive hike to interest rates in March.
Overnight in Asia, markets fell sharply with the Hang Seng down by more than 3%. The Bank of Japan kept rates unchanged while Kazuo Ueda was approved in Japan’s parliament as the next BOJ governor.
Risk-off sentiment has pushed oil prices further into the red, on track to log a weekly loss, with Brent crude inching closer to support at $81 a barrel.
UK GDP came in flat year-on-year in the three months to January, above expectations for a drop of 0.1%. The monthly figure rose by 0.3% following a fall of 0.5% in December and topping forecasts for a rise of 0.1%.
Driving January’s gain was an uptick in the service sector output, which grew by 0.5% following a drop of 0.8% in December thanks to education with a return to normal levels of school attendance as well as a pick-up in postal and courier activities. Real estate however was the only services subsector in negative territory amid the rise in mortgage rates and subdued housing market activity.
Consumer-facing services grew by 0.3% in January, recovering from a drop of 1.2% in December thanks to the resumption of Premier League football which strengthened demand for sports and recreation. However, they are stuck 8.6% below their pre-Covid levels from February 2020.
While services improved, manufacturing shrank falling by 0.4% with over half of its subsectors in decline and construction also fell sharply by 1.7%.
Heavy industrial action weighed on education and postal service activity in December, with a reduction in strikes in January prompting a rebound in activity to start the year. The end of the FIFA World Cup and the resumption of the Premier League also helped drive demand for football related spending.
For now, it looks like the UK is on track to avoid a recession with January’s monthly growth figure landing fractionally above zero. When combined with the government’s unexpected budget surplus in January, the data is well timed for the Treasury and could give Chancellor Jeremy Hunt some wiggle room when he delivers the Budget next Wednesday 15 March.
In light of the data, the pound is gaining some strength against the US dollar going against the decline for cable (GBPUSD) over the past year. An appreciating sterling helps to provide a natural offset to UK inflationary pressures.
Berkeley Group Holdings (The) (LSE:BKG) has confirmed that it is on track to deliver pre-tax earnings of £600 million for the year ending 30 April. Sales since the end of September were about 25% lower than the first five months of the year.
The stark contrast in financial performance pre and post September highlights the extent to which the mini-budget’s fallout for mortgage costs caused shockwaves across the housing market. Berkeley Group suffered a sharp drop in sales and the market is still reeling from the fiscal fiasco. Although green shoots of optimism are starting to emerge with stronger-than-expected Halifax house price data this week and strong share price performances to start the year from the likes of Taylor Wimpey (LSE:TW.), Persimmon (LSE:PSN) and Berkeley Group, headwinds remain; the Bank of England continues to pursue its tightening trajectory, house prices are expected to cool further this year, and mortgage rates are still stuck near multi-year highs.
Although January saw a significant jump in Berkeley Group’s shares, the stock has been under pressure, reversing its initial gains since the peak at the start of February and is trading lower today.”
Robert Walters (LSE:RWA), the founder and CEO of his namesake recruitment firm is retiring on 27 April and will step down from the board. Toby Fowlston will take over as chief executive. Fowlston has been with the group for most of his career, having joined as a consultant in 1999, and has since held a number of senior roles in the UK and Asia Pacific.
Walters founded the company 37 years ago and has grown the specialist recruitment consultancy into a business that employs 4,300 workers across 31 locations. It listed on the LSE for the second time in 2000 with shares up around 170% since then. However, shares have fallen sharply since the peak in January 2022.
The stock is bucking the wider market downturn in today’s session, staging gains as investors cheer the change in leadership. The recruiter reported full-year headcount up 25% to 4,356 but warned of market uncertainty in the second half that has tipped into the early months of 2023.
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