Reuters: The South African rand and stocks rose on Wednesday, as regulations to mitigate the U.S. banking crisis boosted global confidence. Regulators allayed some fears over a global banking system failure sparked by the collapse of U.S.
South African Rand and stocks
Silicon Valley Bank earlier this month, which restored some risk appetite to markets. At 1527 GMT, the rand traded at 18.1025 against the dollar, 0.28% stronger than its previous close. The dollar index, which measures the currency against six rivals, was last up about 0.19% at 102.68. At the week’s halfway point, volumes and activity were low on the Johannesburg Stock Exchange, said Sasfin equity strategist David Shapiro. “At least we’re in a steady incline, slowly clawing our way up just along the board,” Shapiro added.
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The blue-chip Top 40 index closed 0.6% higher, while the broader all-share index rose 0.57%. Local stocks were lower than global counterparts with the MSCI All-World index, which captures equity performances across 23 developed economies, was up slightly at 0.15%. Local investors will now turn their focus towards the South African Reserve Bank’s rate decision on Thursday, with markets expecting a 25-basis-point increase. The government’s benchmark 2030 bond was stronger, with the yield down 7.5 basis points to 9.815%.
British Pound
Reuters: The British pound hit its highest level against the dollar in eight weeks on Wednesday as worries about the health of the global financial system continued to ease. The pound rose 0.1% against the dollar to $1.2359, its highest since Feb. 2. The euro rose 0.1% against sterling to 87.91 pence. The pound’s risk-sensitive nature means it was “supported by the rebound in risk appetite amidst cooling concerns about the banking sector turmoil”, according to George Vessey, FX and macro strategist at Convera. Markets have been volatile in March following the collapse of U.S. tech lender Silicon Valley Bank and the emergency takeover of Credit Suisse by banking rival UBS, raising fears of systemic stress that could lead to more bank failures.
But relief swept over markets this week after regional U.S. lender First Citizens BancShares bought the assets of SVB and the absence of fresh concerns helped lift confidence among investors. “Sterling is quite sensitive to risk-on, risk-off moves,” said Joe Tuckey, head of FX analysis at Argentex. “Things are looking finely balanced and if there’s another leg down in U.S. equities you could see safe haven flows into the dollar and a leg back down in cable (GBP/USD),” he added. Bank of England Governor Andrew Bailey said on Tuesday the central bank was on alert amid global turmoil in the banking sector, but added Britain was not experiencing stress linked to the problems at SVB and Credit Suisse.
“Bailey was suggesting that these have been a couple of idiosyncratic, bank specific issues,” Argentex’s Tuckey said. “The market is of the sense at the moment that this isn’t going to be some sort of pervasive, systemic banking crisis.” The BoE raised interest rates by 25 basis points last week, the 11th increase of the current tightening cycle, but markets expect the central bank is close to calling time on rate hikes. Traders price in around 14 basis points of tightening at the BoE’s May meeting, implying around a 60% chance of a 25 basis point hike.
US Dollar
Reuters: The U.S. dollar was on the front foot on Thursday as receding concerns over the banking sector helped improve risk sentiment, with investors switching their attention to the Federal Reserve’s battle against inflation. The dollar index, which measures the currency against six major peers, rose 0.097% at 102.73, after gaining 0.19% overnight. The index though was on course to clock a 2% decline for March due to market tumult induced by problems in the banking industry. “The broader risk sentiment appears sustained as bank contagion concerns continued to fade and a rally in China equities grabs some attention,” said Christopher Wong, a currency strategist at OCBC in Singapore. “While risk sentiment somewhat continued to hold up this week, we expect month-end flows alongside risk-on, risk-off flows to drive two-way trade.”
Banking stocks were battered in the past few weeks in the wake of the sudden collapse of two U.S. lenders and the rescue of Credit Suisse, with the dollar under pressure over fears that the Fed may have to relent in its fight against inflation and pause rate hikes. But with no further signs of cracks in the financial sector and steps taken by regulators, investor nerves have been calmed for now. Focus has switched back to what the Fed is likely to do at its next meeting in May. Markets are pricing in a 60% chance of the Fed standing pat on interest rates, according to CME FedWatch tool. “With recession fears fading off, the market’s focus is now turning to the upcoming U.S. PCE data later this week, which is seen as the Fed’s favourite inflation parameter,” said Tina Teng, a market analyst for CMC Markets.
Caution still needs to remain in the mind as the Fed may not be as market-friendly as thought if inflation does not pave the way. The euro was down 0.13% to $1.0829, but was on track to end the month with a 2% gain. Sterling was last at $1.2297, down 0.11%, after slipping 0.2% on Wednesday. The Japanese yen strengthened 0.05% to 132.77 per dollar, after falling 1.5% overnight. The currency has been volatile in the run-up to the end of the Japanese fiscal year on Friday. The Australian dollar fell 0.21% to $0.667, while the kiwi fell 0.22% to $0.621.
Global Markets
Reuters: Asian stocks rose on Thursday with fears easing on the banking front and the prospect of a break-up at Chinese conglomerate Alibaba offering an encouraging sign that Beijing’s regulatory storm focused on tech companies might finally be clearing. MSCI’s broadest index of Asia-Pacific shares outside Japan gained for a third day in a row, rising 0.3%. It is eyeing two consecutive quarters in the green for the first time since the middle of 2021. Japan’s Nikkei eased 0.6% after jumping 1.3% on Tuesday. It is up 6.1% for the quarter, its best since March 2021.
Australian stocks rose 1%. Overnight Wall Street indexes jumped after the U.S. banks’ top cop appeared before Congress and focused remarks on failures at Silicon Valley Bank and its supervision, rather than broader systemic issues across the financial sector. The U.S. dollar was firm, particularly against the safe-haven Japanese yen as investors wound back some of the safety positions built up in the last couple of weeks.
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The yen last traded at 132.75 to the dollar. As the dust settles on a wild and volatile ride after Silicon Valley Bank’s collapse unleashed fears of a broader banking crisis, the winners appear to be bonds and large tech companies that tend to benefit when interest rates fall. From the two-year tenor all the way to 30-year, U.S. yields are below the current Fed funds rate of roughly 4.8% as markets have dramatically repriced the rates outlook. Two-year yields are down 30 basis points for the quarter, the first quarterly fall since March 2020. The rates-sensitive Nasdaq is heading for its best quarter in more than two years. Nasdaq and S&P 500 futures were steady on Thursday. In Asia, investors extended a rally in Alibaba’s Hong Kong shares as a conference call offered more details on the company’s plan to spin off its businesses.
The breakup will transform the conglomerate into a holding company, rather than an operational one, chief executive Daniel Zhang said on the call. Investors are hoping the plans signal authorities’ tacit approval for growth and profit ahead. “At least the conglomerate is calm and the regulatory uncertainty is calmed,” said Redmond Wong, greater China market strategist at Saxo Markets in Hong Kong. “For the share price, this is quite big and this latest development can remove some of these concerns and improve on the valuation.” The stock, which hit above HK$300 in 2020, traded at HK$96.30 on Thursday. The broader Hang Seng rose 0.2%. Elsewhere in commodity trade, Brent oil futures steadied at $78.18 a barrel and gold, which has surged over the past few weeks, was under gentle pressure at $1,958 an ounce. The euro dipped marginally to $1.0832.
Published by the Mercury Team on 30 March 2023
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