Wednesday 29th March 2023
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European markets were higher on Tuesday, but the US indices were slightly softer as the yield on the 2-year Treasury note rose back above 4%. Technology names were generally weaker with the notable exception of Alibaba. Shares in the Chinese e-commerce platform surged 14% as it announced a plan to split into six entities. Bank stocks were mostly softer although Citizens Financial, which is buying the rump of SVB, rose to a record high. Lithium stocks leapt after ASX listed Liontown resources rejected a A$5.5b bid from chemical giant Albemarle, the world’s biggest lithium producer.
Sentiment towards the banking sector appears to have stabilised following the decisive actions of officials, and also on plans for stricter supervision to ensure that a case like SVB (which has in any event been positioned as a ‘textbook’ case of mismanagement) doesn’t happen again. Federal Reserve Board Vice Chair for Supervision Michael S. Barr has been testifying at a Senate Banking, Housing and Urban Affairs Committee hearing on “Recent Bank Failures and the Federal Regulatory Response” on Capitol Hill. Mr Barr said that capital and liquidity standards for regional banks over US$100 billion will need to be strengthened.
Barr also revealed that the extent of the run on SVB was bigger than many realised. SVB customers withdrew around US$42 billion from the bank on March 9 on concerns that uninsured deposits were at risk. A further US$100 billion was however scheduled to go out the day before regulators seized control. This would have equated to over 80% of the tech focussed lender’s deposits.
Confidence amongst US consumers also appears to have improved a bit, despite the banking crisis. The Conference Board’s Consumer Confidence Index edged higher to 104.2, from 103.4 in February and ahead of estimates for around 100.7. While the outlook for inflation over the next 12 months remained elevated at 6.3%, the short-term outlook in terms of consumer confidence marched higher to 73, although still below a level (80) which is consistent with recessions.
Some consumer facing companies are still doing fairly well it seems, and particularly those that are defensively positioned. Pharmacy chain Walgreen Boost Alliance posted a better-than-expected rise in quarterly sales, despite declining Covid vaccine volumes. ‘Guilty pleasure’ companies also appear to be doing well, and have a strong outlook it seems. There has been strong investor appetite for chocolate bar maker Hershey and beverage company Monster recently, with both hitting record highs.
In the tech sector, Apple was only slightly lower. The company has announced it is getting into buy-now-pay-later with the launch of “Apple Pay later”. The service will allow users to split purchases into four payments over six weeks.
Also planning a split is Alibaba. The company has announced it will demerge into six business groups, each with the ability to raise external funding and go public. This is the most significant reorganization in the Chinese e-commerce giant’s history, and while positioned as a move “designed to unlock shareholder value and foster market competitiveness,” it is also likely a response to placate Chinese regulators. who have been cracking down on big tech, and in 2021 fined Alibaba for monopolistic behaviour during an antitrust probe. Reports that the company’s outspoken founder Jack Ma has returned to China after several months away suggests that an olive branch may have been extended by authorities.
European indices were higher, with the banking sector up 0.7%, although Deutsche Bank declined 1.3%. The FTSE in the UK rose 0.17% despite data showing the persistence of one key inflationary driver. UK shop price inflation rose to 8.9% in March from 8.4% in February, with food prices jumping a record 15%. Little surprise that industrial action has been elevated in recent months given cost of living pressures. Employers also have their breaking point as well though. The Royal Mail has threatened to put its loss making (around £1m per day) postal service into administration if a compromise deal cannot be reached with the union over pay demands for its 100,000 members
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