Silicon Valley Bank, with a reported $212 billion in assets, was the 16th largest Bank in the U.S and the 2nd largest U.S Bank to fail. The largest was Washington Mutual Bank which failed in 2008 with roughly $300 billion in assets.
Australian Share Market (ASX 200) – down 1.91% for the 5th week in a row and giving back most of the impressive early year to date gains. It was a volatile end to the week in markets with uncertainty persisting over the weekend. The proposed equity raise by Silicon Valley Bank late last week to shore up their balance sheet turned into an old-fashioned bank run with depositors rushing to pull money out of them and various smaller banks with Silicon Valley Bank and then New York based Signature Bank being shut down over the weekend. Regulators at the Federal Reserve, Federal Deposit Insurance Commission and Treasury departments scrambled to protect unsecured deposits and provide depositors with access to their funds by Monday morning, much of which was company working capital, which they managed to do, easing some of the concerns by the time markets reopened last night. As the name suggests, Silicon Valley Bank had ridden the boom in Startups, Venture Capital, Private Equity, and profitless Tech stocks. But as the tide of easy money recedes, some cracks have appeared in some of the more speculative areas of markets and the economy, weighing on investor confidence. Domestically, the Reserve Bank of Australia and Governor Lowe were in the spotlight last week. The RBA hiked the cash rate by another 25 basis points as expected to 3.60% but leaned dovish in the statement with the ASX200 gaining on the “dovish hike”. The RBA softened their rate hike guidance to “further tightening will be needed”, from last month’s “further interest rate increases will be needed in the months ahead.” The RBA suggested inflation has now peaked and downplayed the risk of a wage-price spiral following the recent weaker than expected Q4 Wage Price Index in what was a very different tone from a month ago. Markets pared back the terminal cash rate forecasts to 4% from 4.4% after last month’s RBA meeting with markets also considering the possibility of a near term pause. In a speech at the AFR Business Summit the next day, Governor Lowe confirmed the dovish signals in Tuesday’s rate hike policy statement saying the Central Bank is close to a pause in the current hiking cycle.
U.S. Share Market (S&P 500) – down 4.55% with the Dow (-4.44%) and Nasdaq (-4.71%) also lower on the more hawkish than expected Federal Reserve Chair and the late week Banking sector woes. The scheduled highlight of the week was U.S Federal Reserve Chair Powell’s 2 days of monetary policy testimony before the Senate Banking, and House Committees where he struck a more hawkish than expected tone. In contrast to recent dovish appearances earlier this year the Fed chair pointing to a recent reversal of the disinflationary trends and that interest rates probably need to be higher than expected. Following the comments market pricing had moved to an expected 50-basis point rate hike (up from the 25-basis point hike previously expected) at the upcoming March 22 Fed meeting. The peak Fed funds rate also moved higher and was seen hitting the 5.5% -5.75% range by June. Employment data was largely better than expected with the January JOLTS report still showing an historically high 10.8 mill job openings and the Nonfarm payrolls on Friday night was another strong result with 311k jobs added vs. the 205k gain expected. Although the unemployment rate did unexpectedly increase from 3.4% to 3.6%. Following the weekend’s events there was a dramatic repricing of interest rate expectations with markets now only seeing one more rate hike this cycle with the median peak Fed funds rate of 4.75%, down nearly 100 basis points from a peak of 5.69% following Powell’s testimony. Interest rate cuts are also now seen starting in June, which is a big turnaround from mid last week when the prospect for any rate cuts this year had been completely priced out.
Shell (SHELL) CEO sees record oil demand this year. Shell CEO Wael Sawan in an interview last week said oil demand is expected to hit a new record this year with prices “more likely to be on the higher side than the lower side” over the coming months due to tight supply and demand balances. He suggested demand is likely to be propelled by China reopening with OPEC and other major producers showing little sign of increasing output. Sawan said Shell is unlikely to unleash capital spending on new production growth with performance and discipline likely to be the two key goals ahead of their strategic update in June.
Apple (AAPL): Analysts flag demand for iPhones bouncing back in China with the production and lock down challenges that led to lower sales seemingly over along with other positive signs of re-emerging demand. “Because of these constraints, we had significantly less iPhone 14 Pro and iPhone 14 Pro Max supply than we planned, causing ship times to extend far beyond what we had anticipated,” Chief Executive Tim Cook said during Apple’s earnings call in February. There were no major unit cuts from suppliers in Asia yet, a positive sign that likely shows steady demand for the flagship iPhone 14 Pro in the March and June quarters. iPhone sales are vital for Apple with smartphone revenue making up $65.8 billion of its total December quarter sales of $117.2 billion. Overall sales from China made up $23.9 billion in revenue last quarter, behind Europe and the U.S.
Incoming Sony (SONY) boss outlines evolving corporate strategy for the Japanese tech and entertainment giant. Sony CFO Hiroki Totoki, who is about to step into the role of President next month, outlined his evolving corporate strategy for the company last week. He mentioned the Hollywood film and TV studio is “subscale” in comparison to rival media players but that Sony Pictures remains a key driver of earnings and as it doesn’t have a costly streaming platform they can sell their content to the highest bidder. He said the gaming division, a key earnings driver, will be able to finally meet pent-up demand for PlayStation 5 consoles. On the music side, he said they would be looking to grow the music streaming business, doing more to grow in emerging markets, including Mexico and Brazil, and drive earnings growth from rising subscription prices at Amazon Music and other music streaming sites.
The Week Ahead
Domestic economic data releases this week include NAB Business Confidence today and Consumer Inflation Expectations on Thursday. Also Thursday is the February Labour Force data where consensus is for a 45k jobs gain after a surprise 11.5k loss in January. The unemployment rate is expected to hold steady at 3.7%.
Internationally we have Eurozone Industrial Production tomorrow night along with the U.S retail Sales, the Empire State Index, Business Inventories and the NAHB Housing market Index. Thursday night sees U.S Housing Starts, the Philadelphia Fed Index and the ECB’s interest rates decision where a 50 basis point hike to 3.50% is expected. U.S Capacity Utilization, Industrial Production, Leading Indicators and Michigan Consumer Sentiment are Friday night.
The highlight of the week is likely tonight’s February Consumer Price Index report with consensus looking for a 0.4% monthly rise, a down from January’s 0.5% increase, and expectations for a 6.0% annual increase vs. January’s 6.4%. Core CPI is expected to rise 0.4% for the month, in line with January’s increase. The Producer Price Index tomorrow night is expected to have risen 0.3% for the month, down from 0.7% last month with the annual increase in PPI falling to 5.4% from 6% last month.
Corporate reporting continues to wind down with both the ASX and U.S Q4 reporting seasons now largely over, but with several our companies going ex-dividend.
Saward Dawson Wealth Advisors Pty Ltd, a Corporate Authorised Representative of Akambo Pty Ltd t/a Accountants Private Advice
The information presented in this publication is general information only, and is not intended to be financial product advice. It has not been prepared taking into account your investment objectives, financial situation or needs, and should not be used as the basis for making an investment decision. Before making any investment decision you need to consider (with your financial adviser) your particular investment needs, objectives and financial circumstances.
Some numerical figures in this publication have been subject to rounding adjustments. Akambo Pty Ltd (including any of its directors, officers or employees) will not accept liability for any loss or damage as a result of any reliance on this information. The market commentary reflect Akambo Pty Ltd’s views and beliefs at the time of preparation, which are subject to change without notice.