Global banking stocks continued to slide as investors queried to what extent other banks were negatively impacted by the sharp rise in interest rates following the recent failure of US banks SVB, Silvergate and Signature. Swiss bank Credit Suisse was the latest casualty of the fearmongering. Over the last two weeks, European banks are down by an average of 19%, while US banks have shed 17%.

UK

The bank-heavy FTSE 100 dropped 6.3% over the week.

Chancellor Jeremy Hunt’s budget relaxed pension restrictions for highly paid workers in an attempt to avoid a flood of NHS consultants retiring early. The chancellor also extended free childcare for pre-school age children. UK GDP is now expected to shrink by 0.2% in 2023, compared to previous forecasts of a 1.4% contraction.

Hopes that NHS workers will soon call an end to their strikes were boosted after unions appeared to give their support to the government’s latest pay offer.

The latest survey of UK households’ inflation expectations slid to 3.9%, down from 4.8% in November 2022 and the lowest since November 2021.

Annual average total pay growth, including bonuses, was 5.7% in the three months to January, down from 6.0% the previous month.

US

The S&P 500 rose 0.3% over the week, while the Nasdaq gained 2.9%.

Shares of First Republic Bank tumbled despite news that 11 of the largest US banks agreed to deposit $30bn to shore-up the San Francisco-based lender’s finances. First Republic shares are now down more than 70% from levels seen prior to SVB’s troubles.

Treasury secretary Janet Yellen also told a Senate committee that the banking sector was “sound” and that “Americans can feel confident that their deposits will be there when they need them”.

Speculation grew that the problems in the banking sector would prompt the Federal Reserve to back off its aggressive strategy of rate increases aimed at tackling high inflation. Markets are now pricing in, at most, a 25-bps increase, followed by rate cuts of about 100 bps by the end of the year.

US inflation rose at an annual rate of 6.0% in February, down from 6.4% in January. Core inflation remained sticky, rising 5.5% on an annual basis in February, compared to 5.6% in January.

US retail sales slid 0.2% in February.

Over the weekend, some stocks are changing sectors in the S&P 500 Index. Visa and Mastercard will be reclassified as financials, as will PayPal and Fiserv, while Automatic Data Processing and PayChex will now fall in the industrials sector. The moves will raise the weighting of Apple and Microsoft in the IT sector to almost 50% from around 44%.

Meta said it would cut another 10,000 jobs in the second round of cost cutting in four months.

Pfizer bought Seagen for $43bn to bolster its drugs pipeline.

Europe

The Eurofirst 300 fell 3.7% over the week.

The European Central Bank (ECB) raised interest rates by 50 bps but ditched a previous commitment to keep “raising interest rates significantly at a steady pace”. The ECB also said it was prepared to provide liquidity support to the euro area financial system “if needed”.

Hourly labour costs in the eurozone accelerated by 5.7% in the final quarter of 2022, a record high.

Emmanuel Macron forced through an increase in the French retirement age from 62 to 64, triggering widespread protests.

Credit Suisse sought to reassure investors late on Wednesday, announcing plans to borrow up to SFr50bn from the Swiss central bank and buy back some of its own debt to improve liquidity.

Japan

The Nikkei 225 lost 3.9% over the week.

Japan and South Korea hailed “a new era” of diplomatic relations at the two countries’ first summit in 12 years as they eased trade tensions and agreed to resume intelligence sharing.

Emerging Markets

The MSCI EM Index slid 3.8% over the week.

Argentina’s inflation rate topped 100% for the first time in three decades.

Bonds

The yield on the 10-year US Treasury bond dropped 34 bps over the week to close at 3.41%, compared to a peak of above 4% earlier in March. The yield on the 2-year note plunged 77 bps over the week to 3.95%, compared to over 5% earlier in the month. The yield curve inversion, which hit its steepest level since 1981 on 7 March, has flattened at least 50 bps since the fall of Silicon Valley Bank.

The yield on the 10-year German Bund fell 40 bps over the week to close at 2.10%.

The yield on the 10-year UK Gilt fell 36 bps over the week to close at 3.42%.

Commodities

Gold prices rose about 6% over the week as investors rotated into safe havens.