Over the course of five days in early March, three small- to mid-size U.S. banks failed, triggering a sharp decline in global bank stock prices and swift response by regulators. Seeking higher investment returns, Silicon Valley Bank (SVB) had dramatically increased its holdings of long-term securities over 2021. The market value of these bonds decreased significantly through 2022 and into 2023 as the Federal Reserve raised interest rates to curb inflation, causing unrealized losses on SVB's portfolio. As clients started pulling money out to meet their liquidity needs, it soon became clear the bank had liquidity issues, leading to a bank run which resulted in its collapse.  Also the small and mid-sized US banks Silvergate and Signature Bank, failed. In response to the bank failures, U.S. federal bank regulators took extraordinairy steps and announced that all deposits, regardless size, would be protected.

Meanwhile in Switzerland also the troubled Credit Suisse was on the brink of collapse until its rival UBS came to the rescue and acquired it in a historic deal backed by a massive Swiss guarantee. To prevent the situation from affecting more banks, global industry regulators, including the Federal Reserve, the Bank of Canada, Bank of England, Bank of Japan, European Central Bank, and Swiss National Bank intervened to provide extraordinary liquidity and put the markets at ease.

As a result of the bank failures, stocks dropped sharply in early March before recovering to finish the month higher. The Fed expressed confidence in the resilience of the US banking system and raised the policy rate once again by 25 basis points in March, despite the recent bank collapses. In February inflation dropped by another 0,40 basis points to 6,0%, while core inflation is showing more resilience, dropping only 0,10 basis points to 5,5% in February. The continuing downtrend in inflation however leading to speculation that further rate hikes will be limited, boosting the stock market. The Dow Jones, S&P500 and Nasdaq Composite gained 1,89%, 3,51% and 6,69% respectively while the dollar lost 2,49% to 1,0839 USD/EUR, driven by changes in rate hike expectations . The US unemployment rate however ticked up from its half century low of 3,4% to 3,6% and signs of an upcoming recession are becoming more prominent.

Also in Europe the stock indexes gained as Credit Suisse's problems were largely seen as being contained. The real estate sector saw significant falls amid worries over higher financing costs and weaker occupancy rates. The European Central Bank once again raised the interest rates by 50 basis points in March. Eurozone inflation declined to a one-year low in March,  dropping from 8,5% to 6,9%, so the higher interest rates now seem to finally make a material impact. However, core inflation rose to 5,7% from 5,6%, so there appears more rate hikes to be done by the ECB. The DAX, Eurostoxx and CAC40 indices added 1,72%, 1,81% and 0,75% respectively. The Slovene SBITop index added 0,52% to close at 1201,12.

On the commodities markets, precious metals gained with gold approaching USD 2.000 per ounce as more investors resort to it as a safe haven. Oil fell to USD 75,67 per barrel and natural gas is back at its lowest level since late 2020.

Rudy Marchant
Fund manager Primorski skladi

Monthly reports 2023