U.S. Stock Indexes Hold Steady
U.S. Stock Indexes Hold Steady Amid Banking System Stress The major U.S. stock indexes held relatively steady on Monday as investors tried to assess the implications of newfound stress in the banking system on Federal Reserve policy. After regulators took extraordinary measures over the weekend to limit the impact of the collapse of Silicon Valley Bank, regional bank stocks plunged, and investors sought safety in government bonds. The S&P 500 closed down 0.2% at 3855.76, marking its third straight day of losses, while the Dow Jones Industrial Average slipped by 0.3%. The tech-heavy Nasdaq Composite, however, added 0.4%.
Global Financial Stocks Lose $465 Billion
Global Financial Stocks Lose $465 Billion in Market Value over Two Days Investors cut their exposure to lenders from New York to Japan after Silicon Valley Bank’s collapse, causing global financial stocks to lose $465 billion in market value over two days. On Tuesday, losses continued, with the MSCI Asia Pacific Financials Index dropping as much as 3.1% to the lowest point since Nov. 29. Mitsubishi UFJ Financial Group Inc. slid 8.6% in Japan, while South Korea’s Hana Financial Group Inc. fell 3.9%, and Australia’s ANZ Group Holdings Ltd. lost 1.5%.
Labor Department to Inform Price Pressures
Labor Department’s Inflation Reading to Inform Federal Reserve on Price Pressures On Tuesday, the Labor Department’s inflation reading will help the Federal Reserve assess price pressures in the economy as the central bank confronts bank failures. Although the inflation rate has cooled from a recent peak last June, it has remained stubbornly high. The consumer-price index, a closely watched measure of inflation, advanced 6.4% in January from a year earlier, just edging down from December’s 6.5% increase. International policymakers have shifted into firefighting mode as investors fret about possible contagion from bank failures in the U.S. and bet that central banks could slow or reverse their aggressive interest-rate increases to avert wider instability.
SVB Shockwaves in EU
Silicon Valley Bank’s Collapse Sends Shockwaves through Markets The collapse of Silicon Valley Bank following a sharp rise in U.S. interest rates sent shockwaves through markets and raised questions about whether financial stability risks will prevent central banks from raising rates much further. The ECB has already said it intends to raise borrowing costs by half a percentage point when its governing council meets in Frankfurt on Thursday. Most economists expect it to go ahead with that move to lift its benchmark deposit rate to 3%, despite sharp falls in European bank stocks on Monday.
EU to Explore Ways to Police Overseas Investments
EU to Explore Ways to Police European Companies’ Overseas Investments The EU is exploring ways to police European companies’ investments in production facilities overseas, following similar moves by the U.S. to limit China and other rivals’ ability to acquire cutting-edge technologies from the West. New restrictions are needed to prevent companies from circumventing export bans on sensitive technology by manufacturing it elsewhere, according to Valdis Dombrovskis, the bloc’s trade commissioner. While the EU has prohibited its companies from selling products that could help Russia’s armed forces in their war in Ukraine, re-exporting loopholes remain. The new measures would come against the backdrop of the Netherlands last week announcing that it would bar the most advanced silicon chip making machines from reaching China after months of direct negotiations with the Biden administration.
UK to Offer Low-Tax Zones
Chancellor Jeremy Hunt is set to announce plans to offer £1bn in government support for 12 new low-tax zones to reduce regional disparities and drive economic growth. Each zone will receive £80mn over five years, with the funds being used for tax incentives, skills improvement, specialist business support, planning system improvement, and local infrastructure development. Negotiations suggest the tax breaks could include relief on stamp duty, business rates, and employer national insurance contributions. The Treasury has stated that the government will start discussions with regional leaders to decide the locations for the investment zones.
UK to Invest £2.5bn in Quantum Computing
The UK overnment is set to launch a 10-year programme to invest £2.5bn in quantum computing, with Chancellor Jeremy Hunt announcing the Plan for Quantum in Wednesday’s budget. The programme is intended to keep the UK competitive in one of the world’s fastest-moving fields of technology and will more than double the funding that is currently available to researchers in industry and universities under the National Quantum Technologies Programme. Whitehall insiders have said that the programme aims to turn Britain into “the next Silicon Valley”.
Delays in Laying Subsea Internet Cables in South China Sea
Projects to lay and maintain subsea internet cables through the South China Sea are being impeded by China, as the country seeks to exert more control over the infrastructure transmitting the world’s data. The Chinese government has caused delays and issued stricter requirements, including permits for work outside their territorial waters. The delays have led companies to design alternative routes to avoid the South China Sea. Industry executives report that the SJC2 cable, which will connect Japan to Singapore, Taiwan and Hong Kong, has been delayed for over a year due to Chinese objections and lengthy permit issues.
Lebanon’s Banking Crisis
The commercial lenders of Lebanon have declared an open-ended strike, thereby creating another obstacle for the depositors who are struggling to withdraw their funds from the country’s dysfunctional banking system. The banks will remain closed from Tuesday for an indefinite period. This move is largely due to the “arbitrary” judicial decisions against them, leading to a reduction in their already limited foreign currency reserves. Furthermore, the banks have also complained about the borrowers being allowed to repay their foreign currency loans at the old exchange rate, while they still have to meet their obligations in foreign currencies.
Russia Saves $80bn in Cash Overseas
Russia has saved about one-third of the $227 billion revenue earned from its commodity exports last year, i.e., $80 billion, outside the country in cash, real estate, and investments in affiliates. This accumulation of shadow reserves has been created due to a record current-account surplus, which is the difference between exports and imports. However, this has raised concerns as the US and its allies are looking to impose more sanctions over Russia’s invasion of Ukraine.
Japan’s bond yields dip
Japan’s benchmark 10-year yield has fallen below the central bank’s earlier policy ceiling as the global bond market rally has alleviated the pressure on the authorities to normalize the policy. The benchmark yield has dropped by 5.5 basis points to 0.24%, the lowest since December, when the Japanese central bank had doubled its ceiling unexpectedly. The failure of Silicon Valley Bank has also stoked bets that the Federal Reserve might pause or opt against faster interest-rate hikes this month. The Bank of Japan has left its monetary stimulus unchanged before economist Kazuo Ueda takes the helm at the BOJ next month.