Global equities fall, gold surges as banking worries linger
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[March 18, 2023] By
Chris Prentice and Elizabeth Howcroft
NEW YORK/LONDON (Reuters) - Investor sentiment remained fragile on
Friday despite massive rescue for the banking sector, leaving global
equities under pressure while gold prices were poised for their largest
one-week rally since March 2020.
U.S. Treasury yields extended their slide, and oil prices dove to
15-month lows.
Data showed March U.S. consumer sentiment fell for the first time in
four months.
In a crisis that began with the collapse of U.S.-based Silicon Valley
Bank last Friday, investors lost confidence in U.S. regional banks and
Credit Suisse in Europe.
Risk appetite waned on Friday after showing signs of recovery on
Thursday. Credit Suisse's chief executive said on Friday the bank was
working hard to stem customer outflows, although this could take time.
Credit Suisse shares resumed their decline.
Analysts say the worry about a possible banking crisis is far from over
despite a group of major banks injecting $30 billion in deposits into
First Republic Bank, a mid-sized U.S. lender, on Thursday.
The MSCI world equity index, which tracks shares in 49 nations, fell
0.55%.
European shares erased early gains and had their steepest weekly drop in
five months, with the pan-European STOXX 600 finishing down 1.3% lower.
It was under pressure from bank, insurance and financial services
stocks.
European Central Bank (ECB) supervisors do not expect contagion for euro
zone banks from the market turmoil, a source familiar with the content
of an ad hoc supervisory board meeting this week told Reuters.
The Dow Jones Industrial Average .DJI fell 384.57 points, or 1.19%, to
31,861.98, the S&P 500 .SPX lost 43.64 points, or 1.10%, to 3,916.64 and
the Nasdaq Composite .IXIC dropped 86.76 points, or 0.74%, to 11,630.51.
Over the last two weeks, the S&P Banking index and the KBW Regional
Banking index plunged by 4.6% and 5.4%, respectively, their largest
two-week drops since March 2020.
The yield on benchmark 10-year Treasury notes fell to 3.423% versus
3.583% previously. The two-year yield, which rises with traders'
expectations of higher Fed fund rates, fell to 3.8354% from a previous
close of 4.13%.
Germany's 10-year government bond yield dropped to 2.069%, its lowest
since the start of February, late in the session.
The ECB raised rates 50 basis points on Thursday, sticking to its pledge
to fight inflation even as some investors called for a pause in the
rate-hiking cycle until the banking turmoil eases.
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Traders work on the floor of the New
York Stock Exchange (NYSE) in New York City, U.S., March 16, 2023.
REUTERS/Brendan McDermid
Markets are pricing in a 25 bps increase by the U.S. Federal Reserve
when it meets next week, down from previous expectations for a 50
bps increase.
Fed data on Thursday showed banks sought record amounts of emergency
liquidity in recent days, which helped undo months of central bank
effort to shrink the size of its balance sheet.
"The fact that the Fed has been very proactive in terms of opening
the liquidity tap is potentially useful and that's stabilised things
in the short term at least," said Guillaume Paillat, multi-asset
portfolio manager at Aviva Investors.
"It's potentially a more stable environment, because it feels like
we've passed the crisis point and things should normalise a bit."
The University of Michigan's preliminary March reading on the
overall index of consumer sentiment came in at 63.4, down from 67 in
the prior month. Economists polled by Reuters had forecast a
preliminary reading of 67.0. But households expected inflation to
subside over the next 12 months and beyond.
"As the economy slows and inflation remains a headwind, consumers
are showing signs of retreating under the pressure. Inflation
expectations are falling, giving the Fed some flexibility in the
future path of rate hikes," said Jeffrey Roach, Chief Economist for
LPL Financial in Charlotte, North Carolina.
Manufacturing continued to struggle under the weight of higher
borrowing costs.
Spot gold prices rose 3.01% to $1,976.84 an ounce after touching
their highest since April. U.S. gold futures gained 2.6% to settle
at $1,973.50.
Bitcoin also rallied on safe-haven buying, hitting a nine-month
high.
The euro was up 0.5% on the day at $1.066, having gained 0.79% in a
month, while the dollar index, which tracks the greenback against a
basket of currencies of other major trading partners, was down at
103.9.
The risk-off sentiment also hit oil prices. At their session low,
both benchmarks were down more than $3. Brent crude, the global
benchmark, fell nearly by 12% in the week, its biggest weekly fall
since December. U.S. futures fell 13% since Friday's close, its
biggest since last April.
[O/R]
(Reporting by Chris Prentice and Elizabeth Howcroft; editing by
Christina Fincher, Richard Chang and Josie Kao)
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