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Drastic drop in Silicon Valley Bank shares, triggers slump in global financial sector trading

March 13, 2023

In our Market Monday insights, Prosperity Investment Management examines the latest developments across the globe's biggest financial markets - providing you with all the latest information you need to know.

Drastic drop in Silicon Valley Bank shares, triggers slump in global financial sector trading

Shares in banks around the world have fallen after troubling factors at one US bank sparked fears of a wider problem for the financial sector.

Shares in Silicon Valley Bank (SVB), a key player in money lending to technology start-ups, plunged after it announced plans to further shore up its finances in the wake of financial difficulties.


This had a knock-on effect, with the four largest US banks losing more than $50bn in market value which was accompanied by bank shares in Asia and Europe falling sharply at the end of last week.


Among the UK banks, HSBC shares fell 4.8% and Barclays dropped 3.8%.


SVB's shares saw their biggest one-day drop on record on Thursday the 9th March, after they plunged by more than 60% and lost another 20% in after-hours trade as investors looked to offload shares in an attempt to avoid further losses.


This slide came a day after the bank announced a $2.25bn (£1.9bn) share sale to boost its finances in the midst of the challenging economic situation.


In the wider market, there were concerns about the value of the bonds held by banks as rising interest rates continue to make these bonds less valuable over time.


Central banks around the world - including the US Federal Reserve and the Bank of England - have sharply increased interest rates as they try to curb inflation in response to the growing economic situation. 


Banks tend to hold large portfolios of bonds and as a result are sitting on significant potential losses.


The continued fall in the value of bonds held by banks is not necessarily a problem unless they are forced to sell them if the current economic situation continues to worsen.

UK economy rebounds by 0.3% ahead of Jeremy Hunt’s Spring Budget announcement


The U.K. economy grew by 0.3% in January, with official figures shown on Friday, exceeding current expectations as it continues to fend off an inevitable recession in Q1 of 2023.

Economists polled by Reuters had projected a 0.1% monthly increase in GDP.

The services sector grew by 0.5% in January 2023, after falling by 0.8% in December 2022, with the largest contributions to economic growth in January 2023 coming from education, transport and storage, human health activities, and arts, entertainment and recreation activities, all of which have rebounded after apparent declines in December 2022.

Production output fell by 0.3% in January after growing 0.3% in December, while the construction sector dropped by 1.7% in January after flatlining the previous month.

The U.K. economy showed no growth in the final quarter of 2022 to narrowly avoid a recession, but it was found it shrunk by 0.5% in December.

The U.K. remains the only country in the G-7 major economies that has yet to fully recover its lost output during the Covid-19 pandemic. With the ONS stating on Friday that monthly GDP is now estimated to be 0.2% below its pre-pandemic levels.

Both the Bank of England and the Office for Budget Responsibility have recently forecast a five-quarter recession which kickstarts in the first quarter of 2023, but the data has so far exceeded expectations with positive results on display.

Despite the better-than-expected January print, economists still broadly believe activity is on a downward trajectory, as high inflation continues to eat into household incomes and business activity.

U.K. inflation slowed to an annual 10.1% in January, continuing to shrink after hitting a 41-year high of 11.1% in October but staying well above the Bank of England’s 2% target which is considered sustainable.

US jobs growth remains strong despite continued rate rises

Jobs growth in the US remained strong last month, as the world's largest economy continued to defy expectations of a slowdown as the economic outlook remains bleak.


Employers added 311,000 jobs in February, more than expected, with bars and restaurants driving the gains observed across the nation.


The unemployment rate however, continues to edge higher with an increase in February of 3.6%, marginally increased from 3.4% in January, which had been the lowest rate since 1969.


The US central bank is trying to cool the economy to ease the pressures pushing up prices as the battle to wrestle back economic shortfalls continues.


However, the US employment market has been resilient, even as the federal bank continues to raise interest rates to the highest levels since 2007.


While this rate has fallen since last summer, it remains far higher than the 2% rate that most central banks consider a sustainable level.

February's job gains followed a surge of hiring in January that surprised economists across the country.


The tight labour market has helped to further push up wages, with average hourly pay in February 4.6% higher than a year earlier, according to the latest data report published by the US Labor Department.


Despite this robust labour market, many analysts say there is a high risk that the US economy will slow sharply and tip into a recession if the economic shortfalls continue.



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