Persistent inflation means Central Banks have to stick with interest rate hikes

This week it was business as usual for central banks, as the Bank of England and the US Federal Reserve both raised interest rates by a quarter percent. This came despite ongoing struggles in some US regional banks and the saga of Credit Suisse and its acquisition by UBS. While most UK and European banks are in decent shape they are struggling with bond markets where short-term bonds pay more interest than long-term ones, opposite to a bank’s typical business model. Trying to keep deposit rates low for savers is causing money to leave bank accounts for better returns elsewhere, which is broadly the problem currently plaguing the system.

Elsewhere, inflation in the UK surprised to the upside, following a third monthly rise in core inflation in the US, suggesting it isn’t possible to start cutting rates yet. With core inflation looking like it won’t budge until wages start falling, some sort of recession that increases unemployment now looks like the only remaining strategy. How already struggling banks cope with that as well is the dilemma policy makers will have to grapple with.

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• Interest Rates – US and UK hike again as inflation defies expectations
• Banks – Shares stabilise after UBS steps in to rescue Credit Suisse
• Property – Borrowing costs and low occupancy hits valuations

(*Please note, The contents of this e-shot been prepared for general information only. It does not contain all of the information which an investor may require in order to make an investment decision. If you are unsure whether this is a suitable investment you should speak to your financial adviser. This information is not guaranteed to be correct, complete, or accurate. FE Research is a division of Financial Express Investments Ltd, registration number 03110696, which is authorised and regulated by the Financial Conduct Authority (FRN 209967). For our full disclaimer please visit www.financialexpress.net/uk/disclaimer. Data Sourced from FE Analytics, and Bloomberg Finance LP.)

Global Banks: Crisis of confidence sparks market turmoil

The collapse of Silicon Valley Bank sparked extreme volatility as frenzied selling of US bank stocks spread to wider markets. SVB is the third US bank to collapse this year as depositors grew concerned about its solvency and a rapid outflow of deposits meant the bank was faced with crystalising short-term losses by selling assets for less than their value if held to maturity. The US Fed and regulators managed to calm US markets, but investors turned their attention to global banks, including Credit Suisse.

Credit Suisse’s share price has fallen steeply in the last few years, following a string of scandals. Despite reassurance from the bank and Swiss regulators, sustained selling saw its share price tumble, adding pressure to global bank stocks. Investors moved money into government bonds, driving up prices and sending bond yields down sharply. Markets have calmed considerably but global equities were down this week, with bank shares experiencing big losses. Safe-haven assets like government bonds, gold and the dollar gained.

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• UK – The Chancellor takes first small steps to address UK growth as bank crisis rattles markets
• Interest Rates – CECB hikes as inflation causes headache for US Fed
• UK – Economy set to improve as Hunt looks to address jobs market

(*Please note, The contents of this e-shot been prepared for general information only. It does not contain all of the information which an investor may require in order to make an investment decision. If you are unsure whether this is a suitable investment you should speak to your financial adviser. This information is not guaranteed to be correct, complete, or accurate. FE Research is a division of Financial Express Investments Ltd, registration number 03110696, which is authorised and regulated by the Financial Conduct Authority (FRN 209967). For our full disclaimer please visit www.financialexpress.net/uk/disclaimer. Data Sourced from FE Analytics, and Bloomberg Finance LP.)

Retailers benefit from resilient consumer demand

Retail spending continues to defy poor consumer confidence as the British Retail Consortium reported relatively robust high street spending in February. Higher prices have seen the volume of goods sold decrease slightly but the value of monthly sales increased by 6.7%, considerably above the 12-month average of 2.4%. Landlord Hammerson said footfall in its shopping centres is back to 90% of pre-Covid levels.

Hammerson said the outlook remains mixed, however. It expects its best locations with premium brands to remain busy but said other locations are starting to see the first signs of cooling. The mixed picture is reflected by businesses with significant high street operations. Greggs said its revenue and profits increased, despite rising costs, and announced plans for another 150 outlets. Next and Primark owner Associated British Foods have recently reported strong trading. However, some retailers are expected to struggle as the rising cost of living erodes disposable income and online retailers have seen sales decline.

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• UK – Strength of the jobs market ins one of the key drivers of Central Bank rate decisions.
• Interest Rates – Central Bankers stick to the script
• UK – Government looks to ease worker shortage as hiring declines.

(*Please note, The contents of this e-shot been prepared for general information only. It does not contain all of the information which an investor may require in order to make an investment decision. If you are unsure whether this is a suitable investment you should speak to your financial adviser. This information is not guaranteed to be correct, complete, or accurate. FE Research is a division of Financial Express Investments Ltd, registration number 03110696, which is authorised and regulated by the Financial Conduct Authority (FRN 209967). For our full disclaimer please visit www.financialexpress.net/uk/disclaimer. Data Sourced from FE Analytics, and Bloomberg Finance LP.)

Housebuilders slump due to poor sales outlook

House prices in February were 1% below the same month last year as slowing buyer demand has put average house prices into reverse. Mortgage borrowing continues to decline as the number of new mortgages for February dropped to the lowest since 2009 during the post-financial crisis housing crash. Average mortgage rates have fallen significantly since the spike following last autumn’s disastrous mini-budget, but they remain elevated and this, combined with high inflation, is severely restricting demand.

The UK’s housebuilders are feeling the effect of falling prices and low demand. Persimmon said sales of its new build homes could drop by 40% in 2023 and Taylor Wimpey says sales could drop from 14,000 to 9,000 as buyers been priced out of the market by inflation and high borrowing costs. The poor outlook has dragged on share prices, with Persimmon down around 11% and Barratt Developments and Taylor Wimpey down between 3% and 4%. This has reversed some of the recent recovery of building stocks after a difficult 2022. 

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• Global – Bond markets continue to adjust their expectations for interest rates
• Government Bonds – Resilient inflation contributes to sell-off.
• China – Production bounces back after the end of Zero-Covid.

(*Please note, The contents of this e-shot been prepared for general information only. It does not contain all of the information which an investor may require in order to make an investment decision. If you are unsure whether this is a suitable investment you should speak to your financial adviser. This information is not guaranteed to be correct, complete, or accurate. FE Research is a division of Financial Express Investments Ltd, registration number 03110696, which is authorised and regulated by the Financial Conduct Authority (FRN 209967). For our full disclaimer please visit www.financialexpress.net/uk/disclaimer. Data Sourced from FE Analytics, and Bloomberg Finance LP.)