Week ending 24th March 2023.

Equity markets have had another very volatile week.

Having initially come under pressure from the negative knee-jerk reaction to the terms of the UBS takeover of Credit Suisse (please see here), equity markets staged a stunning rally as they waited for what the Fed policymakers would do with US interest rates, only to be derailed again by comments from Janet Yellen, the US Treasury Secretary!

As expected, the Fed’s monetary policy meeting on Wednesday (22 March 2023) ended with a 0.25% increase in US interest rates.  However, what was pleasing was that fact that the Fed Chair, Jay Powell, admitted policymakers did consider pressing the pause button on increasing interest rates due to the uncertainty in the banking sector and admitted that this uncertainty would tighten monetary conditions – which could mean higher interest rates aren’t needed to bring down inflation and that the Fed could, as we have been saying, start cutting interest rates before too long.

Unfortunately, having helped confidence in the US banks by guaranteeing Silicon Valley Bank’s deposits, Janet Yellen this week scored an own goal by pushing back against a “blanket” guarantee scheme for deposits at other banks – and given financial markets like to sell first and ask questions later, equity markets pared some of this week’s gains.

Sadly this means anxiety about the banking sector is likely to remain in the short-term – which in turn means equity market volatility will remain elevated.

Elsewhere, in the UK, BoE policymakers voted 7-2 to increase UK interest rates by 0.25% to 4.25% and although retail sales rose 1.2% in February, the GfK Consumer Confidence reading for March remained negative as our incomes continue to be squeezed.

Looking ahead to this coming week, of most interest is US consumer confidence, US PCE (the Fed’s preferred measure of inflation), Eurozone CPI inflation, Chinese PMI and Japanese industrial production.

Investment Management Team