Market Commentary April 2023

Aetas Wealth

The defining story of this month has been the collapse of Silicon Valley Bank and the takeover of Credit Suisse by UBS.

Not only has this led to many asking if a repeat of the 2008 financial crisis is around the corner, it’s raised questions over what levers central banks can pull as they continue trying to tackle soaring inflation across the globe.

As ever, we’ll take a look at what’s happened in key markets around the world over the last month, so we can get a clearer picture of what the situation looks like.

Chancellor Jeremy Hunt delivered his Spring Budget during March, in which he unveiled big changes to pensions and childcare as part of an effort to tempt people back into work. The Budget was accompanied by forecasts from the Office for Budget Responsibility, which estimated that the UK economy will contract by 0.2% this year, and then expand by 1.8% in 2024, 2.5% in 2025, 2.1% in 2026 and 1.9% in 2027.

This came after figures from the Office for National Statistics (ONS) revealed that gross domestic product in the UK went up by 0.3% in January 2023, after falling by 0.5% in December 2022. However, hopes for a bigger economic upturn were dashed by a surprise jump in inflation – as it went up from 10.1% in the year to January to 10.4% in the year to February. This was swiftly followed by a further increase in interest rates, with the Bank of England raising them from 4% to 4.25% – their highest level for 14 years.

The government hopes to see an economic boost from joining a trade pact with 11 Asian and Pacific nations, although estimates suggest it will only boost GDP by 0.08% over ten years.

Meanwhile, continued government help with household energy bills led to government borrowing in February rising to £16.7bn – its highest level for the month since records began 30 years ago.

March also saw dramatic developments in the banking industry, when US financial institution Silicon Valley Bank (SVB) collapsed – and HSBC purchased the UK arm, enabling British technology firms to continue accessing their money as normal. Although the government and the Bank of England were involved with the talks, no taxpayer money was used to save the institution.

Meanwhile, the rescue of Credit Suisse by UBS led to six central banks – including the Bank of England – announcing they would boost the flow of US dollars. Governor Andrew Bailey has stated that while the UK banking system has not been put under stress by recent events, the Bank is on “heightened” alert for more turmoil in the banking sector.

It was a difficult month for London’s stock exchange, as building materials company CRH confirmed it is planning to move its main share listing from the UK to the US, while British microchip designer Arm said it will not pursue a London stock exchange listing this year.

In the retail sector, there was mixed news. On the one hand, Frasers Group purchased The Mall in Luton, a shopping centre with more than 150 retailers, for £58m, and said it has “confidence in the future of the UK high street”. On the other hand, John Lewis has hinted at job cuts and scrapped its staff bonus after going through what it described as a “very tough year”. Meanwhile, online retailer Amazon has confirmed it plans to cut a further 9,000 jobs in order to cut costs.

However, fashion brand Cath Kidston has been saved after being bought from administrators by retailer Next. The £8.5m deal sees Next take on Cath Kidston’s brand name, domain names and intellectual property, but not its shops.

In the wider labour market, the number of job vacancies has continued to fall, declining by 51,000 between December and February. However, the overall figure remains relatively high – standing at 1.1m.

The pound ended March down 0.12% against the dollar, and on the financial markets, the FTSE-100 Index ended the month at 7,638 points, down 3.01% on February.

Ukraine received a significant boost when 17 European countries, plus Norway, agreed to supply the country with at least 1m artillery shells over the next year. Dmytro Kuleba, Ukraine’s Foreign Minister, described this as a “game-changing decision” and “exactly what is needed”. Meanwhile, Russia and Ukraine have extended a deal that allows Ukraine to continue exporting grain through the Black Sea.

The conflict also took a new turn when the International Criminal Court accused Russian President Vladimir Putin of committing war crimes in Ukraine and issued an arrest warrant. The move has been hailed by US President Joe Biden, who said Putin has “clearly committed war crimes”.

As we mentioned earlier, central banks across the world launched coordinated action to keep credit flowing following the failure of SVB and the rescue of Credit Suisse – including the European Central Bank. ECB president Christine Lagarde is confident that a systemic crisis in the banking sector can be avoided, as she believes it is “currently in a much, much stronger position than it was back in 2008”.

Meanwhile, the European Commission has proposed the Net Zero Industry Act to scale up the manufacturing of clean technologies across the EU. It has also unveiled plans to extend a measure to curb gas demand ahead of next winter, after Russia began limiting gas supplies and prices soared.

Germany was the destination for King Charles’ first state visit as monarch this month, after his plans to visit France had to be cancelled at the last minute, due to protests over increasing the pension age to 64. France also struck an agreement with the UK over managing the migrant crisis in the Channel, which will see the UK give France nearly £500m to fund extra offers and a new detention centre.

Meanwhile, Italy has become the first western nation to block artificial intelligence bot ChatGPT, citing privacy concerns and questions over whether it complies with General Data Protection Regulation.

On the financial markets, Germany’s DAX index saw an increase of 1.81% in March to end the month at 15,642 points. Meanwhile, the French CAC 40 index rose by 0.93% in the month to end at 7,330 points.

The US economy grew by 2.6% in the final quarter of 2022, down slightly from the 3.2% growth seen in Q3. Nevertheless, Oren Klachkin, an Economist at Oxford Economics, told CNN that the economy saw a “fairly solid expansion” last year, thanks to “everyone going out and shopping and spending and travelling”. Meanwhile, the rate of inflation slowed from 6.4% in the year to January to 6% in the year to February. This is well down on the 9.1% rate of inflation seen in June.

This comes against the backdrop of the collapse of SVB, and despite fears that this could lead to wider problems in the banking sector and affect economic growth, the US Federal Reserve increased its interest rates by 0.25% in March to a range of 4.75% to 5%. Although the collapse of SVB initially sent shares in US banks tumbling, they swiftly made up some of the lost ground, and the Fed has insisted that the US banking system is “sound and resilient”.

The labour market remained a bright spot in the US economy, with employers adding 311,000 jobs in February – more than many analysts had predicted. However, the unemployment rate still rose slightly from 3.4% in January to 3.6% in the following month.

Meanwhile, the New York stock exchange got a strong vote of confidence when UK microchip designer Arm chose to list in the US rather than in London, describing it as the “best path forward”.

Growing tensions between the US and China over issues such as Taiwan, Ukraine and TikTok, has also impacted on businesses, with the American Chamber of Commerce in China saying US companies are “more negative” about doing business in China than they have been “in a long time”.

On the financial markets, the Dow Jones fell by 0.35% to end the month at 33,274, while the more broadly-based S&P 500 index went up by 1.57% to end at 33,274.

Far East
March saw China’s leader Xi Jinping secure a historic third term as President and the country once again issuing visas to foreign tourists, following the easing of Covid restrictions.

President Xi also visited Moscow to meet Vladimir Putin, raising questions over China’s neutrality following Russia’s invasion of Ukraine. In a notable contrast, Japan’s Prime Minister Fumio Kishida headed to Kyiv to meet with Ukrainian President Volodymyr Zelensky and reaffirm his country’s support for the European nation.

Mr Kishida also met with his South Korean counterpart during March – the first bilateral summit between the two nations in 12 years. During the meeting, they reached agreement on issues including trade and security.

March also saw the official announcement of the Aukus pact – a joint effort involving the UK, the US and Australia seeking to counter Chinese military power in the Indo-Pacific region. Speaking to BBC News, UK Prime Minister Rishi Sunak described China as a “country with fundamentally different values to ours” that “represents a challenge to the world order”.

On the financial markets, Hong Kong’s Hang Seng index fell by 0.81% to end March at 20,400. Meanwhile, Japan’s Nikkei Dow index rose by 0.41% to 28,041. China’s Shanghai Composite index fell by 1.67% to 3,272, and the market in South Korea rose by 1.84% to end at 2,476.

Emerging Markets
As well as meeting with China’s President, Vladimir Putin also headed to the Ukraine port city of Mariupol, in what was widely interpreted as a show of defiance after the International Criminal Court issued a warrant for his arrest.

There was also a significant moment when US Secretary of State Antony Blinken briefly met with his Russian counterpart Sergei Lavrov at the G20 summit in India, where he took the opportunity to tell him Russia must end this “war of aggression” against Ukraine.

On the financial markets, India’s BSE Sensex index fell by 1.37% to end the month at 17,601, and Russia’s MOEX index saw an upturn of 8.58% to end at 2,446. Brazil’s Bovespa index, meanwhile, fell by 1.64% to end the month at 103,213.

And Finally…
It’s frustrating to realise you’ve forgotten your loyalty card when you’re at the till in your favourite store. That’s why Dean Mayhew from Devon got his Tesco Clubcard tattooed on his wrist to make sure he didn’t miss out on points at the checkout. Mr Mayhew, 31, insists he has no regrets, even though he’s only saved £18 worth of points since getting inked.

We can’t help but wonder if he had a bad experience with an online delivery, as research by consumer group Which? found some supermarkets have made bizarre substitutions in recent months when certain items are unavailable. For example, one customer who ordered a roll of tinfoil received a chocolate Santa instead, and another received strawberries instead of the bin bags they wanted. The research found that almost half of supermarket deliveries have included a substitute item over the last 23 months, but the idea of swapping like for like when necessary seems to be quite stretched in some cases.

While we’re on the subject of internet shopping, spare a thought for Tom Arnold, who planned to buy ten pairs of reading glasses online, but misread the quantity and accidentally ended up with 60 pairs instead. After his son shared the story on Twitter, Specsavers naturally bit their tongue, replying: ‘Do we even need to say it?’