Proactive Investors -
- FTSE 100 back below 7,600
- Wall Street volatile after sharp opening falls
- HSBC (LON:HSBA) buys SVB's UK arm for £1
Volatility rules
The FTSE 100 index stayed sharply lower as US stocks proved exceptionally volatile, rallying after big opening falls to recover some of Friday's sell-off after the collapse of Silicon Valley Bank (SVB) sent shockwaves across financial markets, before retreating again.
Around 50 minutes after the opening bell, the Dow Jones Industrial Average was down 42 points, or 0.1% at 31,867 having shed over 200 points at the start, while the broader S&P 500 shed 0.2%, having opened down 1%, and the tech-laden Nasdaq Composite was flat, off 0.02%, having lost 0.8% first thing.
“While the Fed has stepped in to effectively backstop SVB clients, meaning taxpayers won’t suffer any losses, broader fears for the US banking sector are weighing heavily on investor sentiment,” TickMill Group market analyst James Harte said.
Harte noted that, additionally, the State Chartering Authority announced that it was closing Signature Bank to avoid the bank suffering a similar collapse to that of SVB due to liquidity strains there.
“Fears of broader contagion linked to the collapse of SVB and the closure of Signature Bank have seen stock markets coming under heavy selling pressure,” he said.
“With financial sector liquidity concerns likely to remain a key issue going forward, equities look vulnerable to further losses near-term.”
Shares of First Republic Bank had fallen more than 65% at the open with investors betting on it being the next bank to fall.
The bank announced over the weekend that it had secured additional funding from JP Morgan to shore up its liquidity levels.
“However, the news has failed to convince traders and shares are currently down,” Harte noted, with jitters regarding a potential run building.
Regional banks Western Alliance Bancorporation and PacWest Bancorp had also shed 75% and 46% respectively at the open.
In London, around 2.20pm, the FTSE 100 was down 174 points, or 2.2% at 7,574, not far from the session low of 7,548.30.
London's movers
A quick look at some of today’s fallers and risers in London.
Fallers
Empire Metals- down 11.6% to 2.2p
Announced it had raised £1.25mln via the sale of 55mln shares at 2.25p per share, with proceeds used to accelerate its Pitfield copper project in Western Australia.
Direct Line- down 7% to 154p
Reported on Monday a collapse in annual operating profits after what it called “a tough year”.
For the 12 months to 31 December 2022, operating profit tumbled 95% to £32.1mln from £590.3mln, reflecting a volatile operating environment with elevated motor claims inflation, higher-than-expected weather event claims, new regulatory changes and challenging investment markets.
Risers
Nightcap- up 6% to 11.6p
The London cocktails company drank in an increase in revenue which inched the shares higher.
Revenue in the 26 weeks to 1 January 2023 grew by 48% to £23.5mln compared to the same period a year earlier.
Nasdaq set to lead US markets higher
Wall Street is expected to open higher after US regulators stepped in to protect depositors at collapsed Silicon Valley Bank (SVB) and Signature Bank, with the demise of the two tech-focused banks making it less likely that the Federal Reserve will pursue a hawkish agenda when it decides on its next interest rate hike later this month.
Futures for the Dow Jones Industrial Average rose 0.1% in Monday pre-market trading, while those for the broader S&P 500 gained 0.4% and contracts for the Nasdaq-100 jumped 1%.
US stocks fell sharply on Friday following the collapse of SVB, which was rescued by the Federal Deposit Insurance Corporation (FDIC), with a new bank set up to hold and guarantee deposits up to US$250,000 held at the bank.
The DJIA closed 1.1% down at 31, 910, the Nasdaq Composite lost 1.8% to 11,139 and the S&P 500 fell 1.5% to 3,862. The small-cap Russell 200 index declined 3.2% to 1,769.
On Sunday, crypto bank Signature was also closed down due to what was said by the regulator to be a risk of systemic bank failure. All Signature's depositors will be "made whole", said the FDIC, adding that as with the resolution of Silicon Valley Bank, no losses will be borne by the US taxpayer.
“The move by US regulators is seen as an urgent and significant defence of the banking system alleviating some of the concerns last seen during the GFC (global financial crisis),” commented TickMill Group market analyst Patrick Munnelly.
“With a distinct lack of tier one data on the docket for both the European and US sessions, investor focus will shift to tomorrow's US CPI data,” he added. “However, this release may have lost some of its significance given the banking system stress witnessed over the weekend, as the Fed’s focus on fighting inflation has shifted to firefighting systemic stress.”
“Goldman Sachs now believes that the Fed’s hands are tied by the banking system stress as such they do not see the FOMC (Federal Open Market Committee) raising rates at the March 22nd meeting this has led to an uptick in bonds overnight weighing on yields with the 2-year US yields dropping back below 4.5%,” he said.
Munnelly noted that US core inflation is expected to show a ‘modest retreat’ to 5.5% in February, down from January’s year-over-year gain of 5.6%.
Ahead of the restart in the US and London's lead index is at 7,557.65, down 190.70 points, or 2.46%, just above session lows.
UK biotech and VC leaders welcome HSBC deal
UK biotech and venture capital sector leaders have welcomed HSBC’s move to buy Silicon Valley Bank’s UK business.
“This is a win for UK life sciences — and a win for UK banking,” said Steve Bates, chief executive of the BioIndustry Association. “Now we have a major UK bank backing the UK life science industry.”
Michael Moore, who heads the British Private Equity & Venture Capital Association, said: “Confidence should return to markets and the affected businesses with an orderly transition and access to the cash frozen over the weekend.”
Dom Hallas, executive director at Coadec, which represents UK start-ups, said the government deserved “huge credit” for facilitating the deal.
“They have saved hundreds of the UK’s most innovative companies today,” he said.
Meanwhile the FTSE 100 is at 7,595.92, down 152.43 points, or 1.97%.