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Monday Market Minutes: The Peter Principle

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2023-03-26

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Wall Street shrugged off more worries about European banks and finished the day and week on an up note.

But will that last when trading resumes later today in Asia with the ASX-200 looking at a small fall of a few points?

Friday saw the S&P 500 rise 0.6% after slipping for most of the morning on fears about the stability of European banks, led by German giant Deutsche Bank.

 The Dow Jones Industrial Average rose 0.4%, while the Nasdaq ended 0.3% higher.

The S&P 500 saw its second straight weekly gain with a solid gain of 1.4% while the Dow gained 0.4% for week and Nasdaq was up 1.6% as tech stocks were helped by investors looking for safe-haven investments.

After a week where global share markets had a volatile week because of ongoing worries about banking contagion, they did end more confident than they were on Monday and the rate rises from the Fed and the Bank of England didn’t end up having much of a lasting impact.

Heading towards the end of the first quarter, The S&P 500 is up 131.49 points, or 3.4%, the Dow is down 909.72 points, or 2.7% and the Nasdaq is up 1,357.48 points, or 13% (thanks Apple et al).

Eurozone shares rose 1% (despite the fall in Deutsche Bank shares on Friday), Japanese shares rose 0.2% and Chinese shares rose 1.7%.

However, Australian shares remained under pressure falling by 0.6% for the week (closing at 6,955.20 on Friday afternoon) with falls in property stocks, banks, IT and industrial shares.

The NSW election win by the ALP won’t have an impact on the markets but it will boost the standing of the Federal ALP government in Canberra.

Bond yields mostly fell again, following US Treasuries lower.

Oil and metal prices rose but the iron ore price fell. The $A fell despite a further fall in the $US.

One factor that helped the market was a bounce back in US regional bank stocks. The sector rallied on Friday, rising 31% during the session. Amid all the volatility, the KRE ended the week up 0.18%, in contrast to the losses of the previous weeks.

US-listed Deutsche Bank sank Friday morning, putting downward pressure on the major indexes before recovering some of its losses. Deutsche Bank closed 3.1% lower Friday in the US (after an 8.5% fall in Germany), rebounding from a 7% drop earlier in the Wall Street trading session and with strong support from the German Government.

Many US analysts in particular were puzzled by the way investors singled out Deutsche.

They pointed out that the bank has posted 10 consecutive quarters of profit and boasts strong capital and solvency positions and has shaken off fears a few years ago that it was weakening.

Some of the concerns about Deutsche have been linked to its exposure to US commercial real estate and financial derivatives.

However, research firm Autonomous, a subsidiary of AllianceBernstein, dismissed these concerns on Friday as being both “well known” and “just not very scary,” pointing to the bank’s “robust capital and liquidity positions.”

“Our Underperform rating on the stock is simply driven by our view that there are more attractive equity stories elsewhere in the sector (i.e. relative value),” Autonomous strategists Stuart Graham and Leona Li said in a research note. “We have no concerns about Deutsche’s viability or asset marks. To be crystal clear - Deutsche is NOT the next Credit Suisse.”

Lagarde said the ECB could provide liquidity if needed. Other big European banks also fell Friday, including a 5.5% drop for Germany’s Commerzbank, a 5.3% fall for France’s BNP Paribas and a 3.5% loss for UBS which has just started swallowing Credit Suisse. This despite European Central Bank President Christine Lagarde saying eurozone banks are resilient with strong capital and liquidity positions.

Bank stocks ended mixed on Wall Street. JPMorgan Chase fell 1.5%, while Bank of America rose 0.6%.

But the problematic First Republic Bank shares closed 1.4% lower to be down 90% for the year.

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