Signs that interest rates could carry on rising for longer dampened investor sentiment across the globe. In China, a lower economic growth target also weighed on markets. The financial health of Silicon Valley Bank (SVB) was also a focal point towards the end of the week, with developments well into the weekend. Please note that within the Omnis funds, only one of our funds has direct exposure to SVB – and that exposure equates to 0.1% of the fund. For most investors, the fund constitutes a small proportion of their overall portfolio, meaning that any exposure in clients’ portfolios is negligible.
Last week’s performance – major stock markets
| S&P 500 | -4.55% |
| Nikkei 225 | +0.78% |
| CSI 300 | -3.96% |
| Euro Stoxx 50 | -1.52% |
| FTSE 100 | -2.50% |
Commentary
US: Interest rate rises to continue
Federal Reserve Chair Jerome Powell said that the central bank was not done yet with interest rates, and that it could continue to raise rates aggressively if there were signs that inflation was becoming stickier. Mixed data on the US labour market pointed to further rate hikes on the horizon. The financial health of Silicon Valley Bank was under scrutiny as customers pulled deposits after the bank was forced to sell securities at losses to meet capital requirements. Trading in the stock was halted on Friday morning.
Japan: Bank keeps interest rates low
Japan’s central bank did not raise interest rates this week as it continues to provide support for the economy despite inflationary pressures, with the yen weakened against the USD as a result. In other news, Japan’s economy expanded less than expected over the last three months of 2022. This was largely due to private consumption falling short of estimates as rising inflation curbed spending.
China: Lower growth target takes its toll on markets
Signs of weaking demand and the lower-than expected 2023 economic growth of ‘around 5% set at the National People Congress weighed on investor sentiment. Whilst this growth target would represent a recovery from 2022, it is the lowest target in three decades. Inflation in China appears to have moderated in February. In other economic news, Chinese exports and imports extended declines in the first two months of the year as the global economic slowdown hit trade activity.
Europe: All eyes on European Central Bank
Shares in Europe fell along with global markets amid worries about the potential effects of a prolonged period of elevated interest rates and signs that there could be some stress in the banking system. All eyes will be on the European Central Bank this week as they meet to decide on interest rates. It is widely expected that interest rates will rise by 0.5% points. In other news, the Eurozone economy looks weaker than previously estimated – and showed no growth during the last three months of 2022. Consumer demand also weakened in January this year.
UK: Economy grows more than expected
The UK economy rebounded by more than expected in January, driven by growth in the services sector. The economy grew 0.3%, after declining 0.5% in December. This has raised optimism that any recession in the UK may be shorter and shallower than originally expected. Later this week, Chancellor Jeremy Hunt will unveil his spring budget and has vowed to use it to set Britain on the “hard road” to becoming one of Europe’s richest countries but warned that big tax cuts will have to wait. His budget is set to tackle the cost-of-living crisis and persuade companies to invest more.
