April 2023 | Market update
Stock markets bounce back after banking turmoil
Stocks rebounded after the US government said it would protect people’s deposits following a potential crisis in the banking industry.
Global stock markets rebounded after the US government gave fresh assurances over the stability of the banking sector after a string of bank failures. The collapse of Silicon Valley Bank (SVB) sent global markets reeling, with shares in US and European banks tumbling. The US government stepped in to shore up the bank and assured all depositors that they would have access to their funds.
Some of the biggest banks in the world saw billions wiped from their market value in what was the largest bank failure since the 2008 financial crisis. HSBC bought the UK arm of SVB, bringing relief to thousands of UK tech companies and startups worried about not being able to access their money or meet costs. US regional bank Signature Bank also collapsed, while a crisis at Credit Suisse was averted after it was taken over by UBS.
The US Federal Reserve (Fed) raised interest rates again despite fears that it could add to the banking turmoil. The Fed increased its key rate by a quarter of a percentage point to stand at 4.75% to 5%, the highest since 2007. Price rises slowed again in February with US inflation easing to 6% from 6.4% the previous month, significantly lower than last June’s peak of 9.1%. Despite high interest rates, the American economy remains robust. US Jobs growth was strong in February, with employers adding 311,000 jobs. Unemployment also remains close to its 50-year low at 3.6%.
UK interest rates went up again in March after an unexpected rise in inflation. The Bank of England hiked rates up by a quarter of a percentage point to 4.25%, piling on more mortgage pain for homeowners. UK inflation unexpectedly rose in February on the back of food prices surging at their highest rate for 45 years. The annual rate of consumer price inflation rose to 10.4% up from 10.1% in January.
In the Spring Budget, Chancellor Jeremy Hunt announced plans to help those affected by rising energy costs as well as key changes on childcare and pensions. However, Britain’s tax burden is on course to hit a new post-war record while plans to boost business investment were met with a mixed response from business leaders.
China sets lower growth target
China’s political leadership announced plans to expand its economy by around 5% this year, its lowest target for more than three decades. The modest goal underlines the challenges the country faces as it tries to recover after emerging from its zero-Covid policy.
China’s economy picked up in January and February after the country rebounded from three years of Covid controls. Industrial output over the period was 2.4% higher than a year earlier, while retail sales climbed by 3.5%. The data suggests China’s recovery is broadly on track after posting one of its weakest years for growth in decades in 2022. Despite the positive news, property investment was lower, reflecting the caution of home buyers and developers.
The European Central bank (ECB) raised interest rates again by another half a percentage point to 3.5%. Inflation across the euro area fell in February, though not as sharply as expected, dipping to 8.5% from 8.6% the previous month. The energy shock from Russia’s invasion of Ukraine continues to ease and gas prices have fallen.