February 22, 2024

Global Market Dips Following SVB Collapse, Investors Await Chain Reaction Amid Fastest Policy Tightening in Years

Market Dips Across the Globe Following SVB Collapse

Last week saw a significant decline in global risk appetite as major indices worldwide plummeted. The Dow Jones Industrial Average dropped by 4.44%, the S&P 500 sank by 4.45%, and the tech-heavy Nasdaq fell by 4.71%.

In Europe, the German DAX 40 saw a decline of 0.97%, while the UK’s FTSE 100 reported a 2.5% decline. In Asia, the ASX 200 in Australia saw a dip of over 1.91%, while the Hang Seng in Hong Kong experienced a drop of 6.07%.

The collapses were traced back to the United States, where the banking sector left all major indices in trouble. In particular, SVB and Silvergate, a specialized cryptocurrency bank, collapsed and ended their operations. These collapses caused the treasury yield to drop across the markets. As a result, the Federal Reserve called for an emergency meeting on Monday to determine the way forward with monetary policy.

Market participants are considering a 50 basis point rate hike in March as price pressures continue to mount. Furthermore, the market expects rates to remain at a solid 25 basis points throughout 2023 as the prices of gold continue to fare well. Indeed, gold saw an uptick of 2.06% on the week’s close, marking the highest uptick in over 48 hours.

Investors Await Chain Reaction Amid Fastest Policy Tightening in Years

Investors are anxiously waiting to see if the SVB crash will trigger a chain reaction when the markets open on Monday. The situation is particularly tense, given that markets are already on edge and experiencing the fastest policy tightening in recent memory. According to the VIX market gauge, there was an uptick of 34% in the fear factor last week alone – the highest uptick since January 2022.

Several key economic releases are expected as we look ahead to the week. On Tuesday, the US will release its CPI report for February, while Thursday will see the ECB rate hike decision. Traders expect a 0.50% rate hike following the ECB’s recent announcement to keep its foot on the gas for interest rate hikes. As a result, the GBP has seen a broad decline.

However, the downturn rate of the GBP has been fractional compared to the US sell-off rate. Despite a troubled week, the DXY finished with a slight slump, but its bullish outlook remains intact at the 104.30 level.

Meanwhile, the price of gold saw an uptick for the second week in a row, surging off the 100-week moving average and consolidating at $1813. In the coming week, bulls will be looking to push the $1,880 level as the currencies continue to fall.

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