Week ending 10th March 2023.

The main focus of this week for global equity markets should have been today’s (Friday 10 March 2023) US employment data.

That was until yesterday, when shares in the US bank, Silicon Valley Bank, fell heavily after it warned about its financial health with a surprise announcement that it planned to raise new capital after a significant loss on its investment portfolio – and unfortunately, global equity markets had a typical knee-jerk response: a fast and violent sell-off.

Whilst we appreciate the scars from the 2008/9 global financial crisis are still relatively fresh, Silicon Valley Bank (which was today, closed by US regulators) is no Lehman Brothers.

Additionally, as there is nothing to suggest there is any risk of a wider systemic contagion in the banking sector, let alone financial markets from Silicon Valley Bank’s collapse, this week’s equity market falls appear to be a predictable ‘panic first and ask questions later’ reaction. As such, it is very important to resist the urge for any knee-jerk reactions and maintain a long-term perspective as we believe it won’t be too long before cooler heads prevail.

As for today’s US employment data reading, job growth came in at 311,000.  This was stronger than the market consensus (225,000) and although Jay Powell, the Fed Chair, has stated that higher interest rates will be needed in the US if the strong employment market continues to strengthen, we don’t believe this reading makes a 0.50% increase in US interest rates on 22 March 2023 a foregone conclusion (as the market is now speculating).

First of all, revisions to previous readings were negative, while the month-on-month wage growth was lower than expected at 0.2%.  However, most noteworthy was the unexpected rise in the unemployment rate from 3.4% to 3.6%, thanks to the rise in the labour force participation rate to 62.5% – in other words the number of Americans either employed or actively looking for employment rose, which is positive as it not only suggests people are returning to the employment market, but it should in turn help restrain both wage growth and inflationary pressures.

Looking ahead to this coming week we have US CPI & PPI inflation; US & Chinese retail sales; US, Eurozone & Chinese industrial production; UK employment data; an ECB monetary policy meeting and the University of Michigan consumer sentiment index.

Additionally, Jeremy Hunt, the Chancellor of the Exchequer, will present his Spring Budget on Wednesday 15 March 2023, which we will of course be covering in our mid-week update.

Investment Management Team