24 Mar 2023
Investor sentiment calms as banking fears cool
Markets
- Local and global equity markets moved higher this week after a weak start, with investors comforted by central bank and banking regulator support.
- Swiss authorities rushed through a restructure of Credit Suisse with UBS buying the company for a fraction of its closing share price last week. Whilst the restructure provided some calm for deposit holders, it also caused concern in bond markets as the Swiss government changed age-old rules at the 11th hour.
- In local stock news, Healius shares rose strongly after rival Australian Clinical Labs proposed an unsolicited, all-scrip (shares) takeover offer at its larger rival, at no premium, which would see Healius shareholders own the majority of the combined company to be run by Australian Clinical Labs.
- New Hope shares rose strongly after the coalminer beat expectations with its half-year profit doubling to $669 million and the company raising its dividend by one-third.
- Incitec Pivot announced it had agreed to sell its Waggaman Ammonia plant in the US for US$1.675 billion. The deal also secures continued supply of ammonia to the company whilst providing a more flexible balance sheet.
- Newmont has apparently gained access to Newcrest’s (Australia’s largest gold miner) corporate books in a sign that the US company could make a revised offer to seal what would be the world’s largest gold takeover.
- The oil price rose strongly this week arresting falls that begun earlier this month, with improving sentiment and falling supplies providing support.
Economics
- An RBA Assistant Governor downplayed the risks of financial contagion closer to home, noting Australian banks were “unquestionably strong”.
- The US central bank raised rates by 0.25% to 4.75-5.00% in a move that was expected by markets. However, markets didn’t like the accompanying statement and speech which made clear members aren’t considering rate cuts this year.
- US industrial production was flat in February, manufacturing was steady in March, whilst a key national activity index fell in February.
- US home sales rose by 14.5% in February, coming in above expectations, whilst new home sales rose by 1.1% in February versus expectations of a reasonable fall.
- US consumer sentiment fell in March, coming in well below expectations, with inflation expectations falling from 4.1% to 3.8%.
- The US and five other central banks announced coordinated action to boost liquidity in the US dollar swap arrangements, increasing the frequency of operations from weekly to daily. Effectively a show of support that additional liquidity will be provided as and when needed.
- The Chinese central bank said it would cut the reserve requirement ratio for all banks by 0.25%, effective March 27, loosening monetary conditions.
- German investor sentiment fell sharply in March as concerns rose regarding a new financial crisis, ending a five-month streak of consecutive increases in sentiment.
- British consumer price inflation unexpectedly rose to 10.4% in February, as food and beverage prices continued to rise.
- The Bank of England raised interest rates by 0.25% to 4.25%, in an 11th consecutive increase. The Bank remained silent on the next move in rates, reiterating their commitment to bring inflation under control. The Swiss and Norwegian central banks also followed suit with rate rises.
Politics
- Chinese leader Xi Jinping travelled to Russia on his first state visit since the invasion of Ukraine, just days after the International Criminal Court issued an arrest warrant for President Putin for war crimes.
- US officials are studying ways they might temporarily expand Federal Deposit Insurance Corp. coverage to all deposits, a move sought by a coalition of banks in order to provide certainty to deposit holders and banks. The certainty would help the current situation but may also create moral hazard. The Treasury has said they aren’t considering this option currently.
- China’s military said it had monitored and driven away a US destroyer that illegally entered waters around the Paracel Islands in the South China Sea. The US navy has disputed this.
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