Shockwaves from SVB collapse pound global bank stocks
Shockwaves from the collapse of Silicon Valley Bank further pounded global bank stocks on Tuesday as assurances from President Joe Biden and other policymakers did little to calm markets and prompted a rethink on the interest rate outlook. Biden’s efforts to reassure markets and depositors came after emergency US measures to shore up banks by giving them access to additional funding failed to dispel investor worries about potential contagion to other lenders worldwide. Banking stocks in Asia extended declines on Tuesday, with Japanese firms hit particularly hard as anxiety about systemic risk sparked a wider rout in markets.
Traders currently see a 50% chance of no rate hike
A furious race to reprice interest rate expectations also buffeted markets as investors bet the Federal Reserve will be reluctant to hike next week. Traders currently see a 50% chance of no rate hike at that meeting, with rate cuts priced in for the second half of the year. Early last week, a 25 basis-point hike was fully priced in, with a 70% chance seen of 50 basis point. Analysts say uncertainty continues to dog the financial sector with investors still extremely worried about the health of smaller global banks, the prospect of tighter regulation and a preference to protect depositors at the expense of shareholders should other banks fail.
HSBC buy SVB UK
On Monday, HSBC, Europe’s largest bank with a balance sheet of almost $3 trillion, announced it was buying SVB UK for less than the price of a cup of coffee, emerging as a last-minute white knight after less than 24 hours spent scrutinising its books. With assets of around 5.5 billion pounds and deposits of around 6.7 billion pounds, SVB UK is a minnow compared to HSBC. But concerns that SVB’s potential failure could reverberate throughout the UK’s start-up industry resulted in a hasty deal, sealed by deep pockets.
All eyes look towards the Spring Budget
Away from all things SVB, all eyes are on Jeremy Hunt, who tomorrow delivers the Spring Budget, along with a full fiscal statement from the Office of Budget Responsibility (OBR). The government is expected to focus on plans to halve inflation, grow the economy and reduce public debt. The Chancellors economic plan will be based on the four ‘E’ pillars of Enterprise, Education, Employment and Everywhere. The Government’s long-term ambition is to have the most competitive tax regime of any major country. All eyes on the path for business and personal tax, as the original plan was to increase UK Corporation Tax from 19% to 25%, which in the current economic climate is being questions by most business owners as this will only contribute further to pressures for UK businesses.