The Fed announces that it will raise interest rates and one of the big Silicon Valley banks has liquidity problems. As the news becomes widespread, this bank's shares fall by 60% in a single session. This seems to have had a knock-on effect on the shares of the entire financial sector. Could other banks really be in trouble because of this, and what else have we learned during the past week?
Monday's reading of the UK construction sector sentiment index came as a surprise at the start of the week. The data beat analysts' expectations, coming in at 54.6 points (49.1 points were expected). This is the first reading in two months heralding an improvement in the health of the sector.
Tuesday's key event was a speech by Fed Chairman Jerome Powell, who said, among other things: "If the totality of the data indicated that faster tightening of financial policy was warranted, we would be prepared to increase the pace of interest rate hikes." Following Powell's speech, the S&P 500 Index (US500) began to fall, ending the week at minus 3.6%.
Source: Conotoxia MT5, US500, Daily
Wednesday brought us the US non-farm employment forecast report (ADP). The document, created from the payrolls of US companies, seemed to predict the final readings of the change in non-farm employment quite well. The current reading was better than expected at 242,000 (200,000 was expected). This would indicate that the US labour market is still strong, which may encourage the Fed to raise interest rates further.
The Bank of Japan's interest rate decision seemed to come to the fore on Thursday. The institution's new governor chose not to change the negative level of interest rates. Japan's Nikkei index (JP225) was able to gain in anticipation of the announcement of the decision, before returning to levels seen earlier in the week.
Source: Conotoxia MT5, JP225, Daily
In Germany, CPI inflation for February came in at 8.7%, unchanged for three consecutive readings, as forecast.
An important news item for the US market could be the non-farm employment reading, where an increase of 205,000 is expected.
The stock market
In Thursday's session, we learned of the problems of SVB Financial Group bank, whose shares slumped by as much as 60%. This seems to have caused declines in the entire US financial sector. It ended the week with a performance of more than minus 5%, as could be seen in the listing of the Financial Select Sector SPDR Fund (XLF).
Source: Conotoxia MT5, XLF, Daily
Among the companies whose shares fell the most this week are the aforementioned SVB Financial Group bank, whose shares slumped by more than 60%. Shares of electric car manufacturer Tesla fell by almost 10%. Among the few companies whose shares rose are: Apple, up 3.2%; Meta (Facebook), up 4.1%; and General Electric (GE), up 6.8%. All key changes can be seen below.
Currency and cryptocurrency market
In the foreign exchange market, we could see another week of strong strengthening of the US dollar. The EUR/USD pair exchange rate fell by 0.4%. The biggest changes in USD quotations could be seen on the pair with the Australian dollar. The USD/CAD exchange rate rose by 1.8%, approaching resistance levels of 1.4.
Source: Contoxia MT5, USDCAD, Daily
The value of cryptocurrencies is plummeting as a result of the issues surrounding Silvergate bank, a key player in the market. Bitcoin has lost more than 12% of its value over the past week, falling below $20,000, while ethereum has shrunk by 11.6%. The situation appears to be unfavourable for cryptocurrencies. The weekly change in stablecoin market capitalisation, which determines the value of capital in the market, has now fallen by 2% m/m.
Grzegorz Dróżdż, Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
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