The Long and Short of it, week ending 24 March 2023

Publication Type: Market Commentaries
The Long and Short of it, week ending 24 March 2023

An up week for all 3 major stock market indexes, rising every day but Wednesday (FOMC announcement day) and despite hawkish Fed Chair Powell comments and lingering banking system concerns. The week opened with news of the UBS acquisition of Credit Suisse helping to slightly alleviate banking system concerns and moving stock markets higher. Focused concerns still remained, however, with First Republic Bank share prices falling nearly 50% (on Monday). All 3 major stock market indexes powered higher Tuesday on the back of diminished banking system concerns and expectations of a “supportive” Fed decision Wednesday. Treasury rates, steeply lower on the back of flight-to-quality investing, reflecting this same sentiment rose sharply Tuesday with the 2-year Treasury rate, for example, climbing 25 bps higher An as-expected 25bp rate hike accompanied by less-than-accommodative comments from Chairman Powell reversed Tuesday’s sentiment, sending stock indexes sharply lower and Treasury rates, once again, sharply lower. While Chairman Powell stated he expected one more 25bp rate increase this year, he also insisted he did not expect the Fed to ease in 2023 despite very possible restrictive credit conditions arising from the current health of the banking system. Risk-on sentiment returned Thursday, though, with markets more or less refuting Chairman Powell’s comments, believing the Fed would indeed ease in 2023, bolstering stock prices and moving Treasury rates lower through the end of the week. Fresh banking system concerns Friday, sending Deutsch Bank shares pronouncedly lower, moved larger bank stock prices lower (though not regional bank stock prices), capping index level gains. For the week, the S&P 500 Index increased 1.4% to 3,970.99 the Nasdaq Composite Index rose 1.7% to 11,823.96, the Dow Jones Industrial Average increased 1.2% to 32,238.15, the 10- year U.S. Treasury rate fell 7bps to 3.37% and the U.S. dollar (as measured by the ICE U.S. Dollar index – DXY) weakened 0.6%.

European stock indexes also moved higher last week though slightly less so than U.S. indexes. Early to mid-week gains in oil and base and precious metal prices moved energy and mining stocks higher, lifting index levels higher as well. Positive sentiment regarding banking stocks, also early in the week, did likewise with both the STOXX 600 and FTSE 100 Indexes up over 2% through Tuesday. The FOMC rate decision Wednesday, announced after European market hours, seemingly had little effect on European markets though the BoE’s announcement Thursday (25bp rate increase) along with lingering banking system concerns may have pressured stock prices lower. Revived banking system concerns, this time centred on Deutsche Bank, pushed bank stock prices markedly lower, moving both the STOXX 600 and FTSE 100 Indexes noticeably lower as well. Bund and Gilt rates mimicked U.S. rate moves, moving higher through Wednesday and then reversing to end almost unchanged at week’s end. For the week, the STOXX 600 Index increased 0.9% to 440.10, the FTSE 100 Index rose 1.0% to 7,405.45, the 10- year Gilt rate fell 3bps to 3.28%, the 10-year Bund rate increased 1bp to 2.12% and the British pound and euro strengthened 0.5% and 0.9%, respectively, both with respect to the U.S. dollar.

Top performing ETPs over the week

. 3x Long ETPs 3x Short ETPs
UK +3x BAE Systems (3LBA) +23.2 % -3x Barclays (3SBC) +9.9%
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The Long and Short of it, week ending 24 March 2023