Market snapshot: critical few days ahead for global stocks

Share prices are higher Thursday but confidence is slow to build and quick to shatter. The coming few days will be critical in determining sentiment.

The UK chancellor may have served up a balanced platter in the Budget, but global investors had bigger fish to fry.

Investors were already on edge following the news emanating from the largely US-focused SVB Financial Group (NASDAQ:SIVB), but a household name such as Credit Suisse Group AG (SIX:CSGN) entering the fray – albeit for seemingly different reasons – took concerns to a whole new level.

US markets endured a torrid session which at one point saw sellers pushing against an open door. At one stage the Dow Jones was down by over 700 points, although it managed to claw back some of these losses, while the benchmark S&P500 briefly saw its 2023 gains evaporate entirely. The slight improvement in performance followed an announcement from the Swiss regulator pledging support for Credit Suisse, who later announced that it would be borrowing around $54 billion from the Swiss central bank to strengthen its capital position.

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On home shores, US investors also continued to weigh the likelihood of a change in the Federal Reserve interest rate hiking policy given these most recent developments. The case for a slowdown was perhaps strengthened by a retail sales release which showed a decline of 0.4% from the vitally important consumer, against expectations of a drop of 0.3%, and compared to a gain of 3.2% the previous month. US producer prices also fell in February, suggesting some hope that the fight against inflation has turned a corner. Indeed, the current consensus is now evenly split between a pause in hiking and a rise of 0.25% at this month’s Fed meeting.

The latest leg of issues designed to test the mettle of investors has also had a negative impact on the performance of the major indices in the year to date, with the Dow Jones now down by 3.8%, the S&P500 up by just 1.4%, and the Nasdaq off earlier highs but still ahead by 9.4%.

Unsurprisingly, the Asian markets followed a similar pattern to the States, with some severe initial pressure on financial stocks in particular, as well as the more risk-on sectors such as miners and consumer stocks. The news has poured some cold water over the effectiveness of any Chinese economic recovery, especially if set against a broad global slowdown. Some of the heavy selling subsided in later trade, although for the most part markets finished in the red.

The baton is now passed to Europe, where traders are pricing in the likelihood of just 10% that the European Central Bank (ECB) will persist with its previously flagged interest rate hike of 0.5%. This leaves the ECB with a tough call, and if the consensus proves correct and it steps back temporarily from its fight against inflation, it may be taken as an admission that all is not well within the European economy.

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For the UK, where the FTSE100 is replete with mining, oil and banking stocks, the reaction on developments was brutal, with the premier index falling by almost 4%, mirroring drops not seen since the pandemic. The moves also wiped out gains which had been accumulated this year and even after the relief bounce in early exchanges today, the FTSE100 and the more domestically focused FTSE250, are now almost exactly flat in the year to date.

The next few days will be critical in determining sentiment, with no news being good news within the banking sector, where it is still hoped that the twin issues seen so far are not only different but isolated and contained. However, it is a recognised part of investment life that confidence is slow to build but quick to shatter and the reverberations of the last few days may yet take some time to settle.