SVB Bank collapse, Aussie unemployment and US CPI will make headlines this week. Picture Getty
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Silicon Valley Bank (SVB) as the name suggests, was known far and wide as a tech lender sitting pretty on more than US$200bn in assets.
Today it’s known as the second biggest bank failure in history.
SVB was hit by a bank run last week as depositors withdrew a whopping US$42bn within a matter of days, triggering a selloff in other US bank stocks.
Depositors are however insured by the FIDC up to US$250k, while uninsured depositors will receive “advanced dividends” sometime this week.
Experts also believe the collapse in unlikely to cause a systemic failure through a domino effect.
“I don’t think this is a type of contagion that would lead to a horrible disease that’s going to bring down the financial system like we saw in 2007,” Aaron Klein, Senior Fellow at the Brookings Institution, told CNN.
“However, I’m not sure if it’s an isolated incident either. SVB isn’t the only bank to go under this week. Silvergate also self liquidated days earlier.
“But the regulators have been telling us the contagion from crypto is contained within parts of our financial system. SVB is big, but it’s not like other banks of its size,” Klein said.
Fed Chair Jerome Powell gave his testimony before the US Congress and House Financial Services Committee over two days last week.
His comments, which swayed from highly hawkish to a more investor-friendly tone have done a lot to move the markets.
On the first day at Capitol Hill, Powell told Congress the Fed will likely continue to hike rates in the coming months, and that bringing down inflation “has a long way to go and is likely to be bumpy”.
“The full effects of our tightening so far are yet to be felt. Even so, we have more work to do,” he said.
“Restoring price stability will likely require that we maintain a restrictive stance on monetary policy for some time.”
US shares plunged on those comments, with the S&P 500 finishing 1.55% lower and Nasdaq falling by 1.25%.
The following day, Powell came back to Capitol Hill with a slightly more accommodating message.
He said,” We’re not on a preset path, and we will be guided by the incoming data. We have not made any decision about the March meeting.”
Fed officials will meet next on March 21-22, when they will update quarterly economic forecasts.
On Tuesday, the RBA heaped more pain on borrowers after it raised interest rates for a 10th consecutive time.
The central hiked the cash rate by 25bp, as expected, to 3.6% which is the highest level since mid-2012.
In the accompanying statement, the RBA said:
“The monthly CPI indicator suggests that inflation has peaked in Australia.”
“The Board’s priority is to return inflation to target. High inflation makes life difficult for people and damages the functioning of the economy.
“The Board expects that further tightening of monetary policy will be needed to ensure that inflation returns to target and that this period of high inflation is only temporary.”
Some analysts believe this statement bodes well for the stock market.
“Of course, a final 25bp hike is far from certain at this point, but the main takeaway for me is that the RBA has removed a key hawkish sentence from the February statement,” said Matt Simpson, a senior analyst at City Index.
“And that is another step closer to the end if their tightening cycle,” he added.
In a press conference the next day, the bank’s Governor Philip Lowe reiterated that a pause will hinge on several factors, including the strength of the jobs market as well as inflation data.
“Our judgment, though, remains that further tightening of monetary policy is likely to be required to bring inflation back to target within a reasonable timeframe,” Lowe said.
“If we don’t get inflation down fairly soon, the end result will be even higher interest rates and more unemployment.”
China’s National People’s Congress (NPC) annual session commenced last week as Xi Jinping secured a historic third term as president from the country’s rubber-stamp parliament.
This annual NPC session, which typically lasts for around 10 days, is an event where the Chinese government announces major policy initiatives as well as proposed laws and regulations.
At the session last week, outgoing premier Li Keqiang announced a dissapointing 5% 2023 GDP growth target for China’s economy. Last year, the target was set at 5.5%, but only 3.0% was ultimately recorded.
China has also announced a series of moves to counter the US, including expanding the Ministry of Science and Technology’s role in orchestrating nationwide initiatives to counter US curbs on AI chips.
In addition, China said it was planning to boost this year’s defence budget by 7.2% following a 7.1% increase in 2022.
Markets were also put on high alert as the US-China rivalry continued to flare up.
China’s new foreign minister Qin Gang said the “so-called competition (with the US) aims to contain and suppress China in all respects, and will get the two countries locked in a zero-sum game.”
Australia’s decision on Thursday to buy as many as five US Virginia class nuclear-powered submarines as part of the AUKUS agreement is also expected to trigger an angry response from China.
All sources from Commsec and Investing.com
In Australia, there will be only a spattering of data out this week. The major headlines will be around the unemployment rate on Thursday, and RBA Governor Philip Lowe’s appearance before the House of Representatives Standing Committee on Economics on Friday.
TUESDAY
NAB business survey
AU monthly consumer confidence index
WEDNESDAY
NZ current account
THURSDAY
CBA household spending indicator
AU overseas arrivals (December/January)
AU Labour force for January
NZ GDP
FRIDAY
Reserve Bank Governor Lowe testimony
In the US, the inflation festival is back in town. On Tuesday: consumer prices; Thursday: producer prices; and Friday: export and import prices.
MONDAY
US consumer inflation expectations
TUESDAY
US CPI / inflation index
US NFIB business optimism index
WEDNESDAY
US retail sales
US industrial production
US NAHB housing market index
China industrial production
China retail sales
China unemployment rate
EU industrial production
THURSDAY
US producer price index
US housing starts
China house price index
EU ECB interest rates decision
FRIDAY
US import/export prices
US conference Board leading index
EU core CPI
EU labour cost index
According to the ASX, there will be no new company listings this week.
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