Research Insights - Market Commentary March 2023
Inflation concerns were cast aside during the month of March as investors shifted their focus to the solvency and viability of the global banking system, following the collapse of several technology-focused banks in the US.
The troubles came to the fore as depositors withdrew significant funds from Silicon Valley Bank (SVB) early in March. SVB mismatched the interest rate exposure of its assets and liabilities, suffering significant asset losses due to increases in cash and bond yields through the past year. To quell fears of contagion to other institutions, the US Federal Deposit Insurance Corporation guaranteed all of SVB’s (and some other US regional banks’) deposits, and the US Federal Reserve also extended emergency funding lines to banks experiencing deposit flight.
In a totally unrelated event but almost at the same time as the SVB collapse, the 1856 founded Credit Suisse Investment Bank had to be rescued initially by the European Central Bank and then only days later was taken over by its Swiss rival UBS.
US Inflation eased to 6% and Australian inflation eased to 6.8% in the year to February. The European Central Bank raised rates by 50bps to 3.5% and the Federal Reserve raised interest rates by 25bps to a target range of between 4.75%-5.0%. Locally, the RBA increased the cash rate a further 25bps to 3.60%.
The Australian share market was broadly flat in March. The Materials sector was up strongly while Financials unsurprisingly saw strong selling in sympathy with global Banking peers. AREITs fell -6.8% on the back of global concerns about demand and utilisation, particularly for office assets. Currency-hedged international equities were up 2.5%, driven largely by robust gains in US Technology stocks and unhedged international equities gained 3.9% as the AUD weakened significantly against the Euro and the Japanese Yen.
Markets are predicting a pivot from central bank rate hikes to a pause followed by rate cuts and bond yields fell sharply. The Australian 10-year government bond yield fell by 55bps to 3.30% and the 2-year government bond yield fell by 64bps to 2.95%. The US 10-year government bond yield
Key Developments Post Month-End
The RBA met on 4th April, and elected to leave the cash rate target unchanged at 3.60%.
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