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Astute Market Overview - 29th March 2023


Welcome to the latest Astute Market Overview, covering financial markets over the last couples of weeks, including interest rate increases, bank concerns, and the importance of sticking to your financial plan.

We had a trio of interest rate decisions from three central banks over the period: in the US, the Federal Reserve increased interest rates by 0.25%, in a bid to bring down inflation. The European Central Bank (ECB) increased their key interest rates by 0.5% to tackle inflation, and bring it back towards 2% targets. And in the UK, the Bank of England’s Monetary Policy Committee voted on increasing interest rates. With a majority of 7-2, the base rate increased by 0.25% to 4.25%, with 2 members voting for no change at all.

Sticking with the UK, the increase came following the release of UK CPI inflation data on Wednesday, showing that inflation in the UK unexpectedly increased in February to 10.4%, from 10.1% in January. Whilst we expected inflation to decrease from January’s release (meaning prices would still rise year on year, but not by as much as in January), the measure is still below October’s high of 11.1% and we still expect inflation to fall sharply over 2023 towards 2% targets.

In other news, following the collapse of Silicon Valley Bank (discussed here), the worried, pent up energy of markets needed somewhere to go, and it appeared that investors began prodding at banks until one fell, ultimately claiming another victim, Credit Suisse. The Swiss government forced a merger between Credit Suisse and UBS, with the latter forced to buy Credit Suisse for $3.2 billion.

What happened? It still remains the case that the issues that brought down Silicon Valley Bank are not inherent in the financial system; the issues that caused the downfall of Credit Suisse were very different from those of SVB. In fact, Credit Suisse had a strong liquidity basis, but its poor management and a “material weakness” in its financial reporting process let it down. The catalyst for its demise came from the chairman of the Saudi National bank, Ammar Al Khudairy, who ruled out any further investment into Credit Suisse from the Saudi National Bank, should it be needed. He has now resigned from his post due to personal reasons.

Whilst markets calmed this week and opened with a boost, markets are irrational, and we could well continue to see volatility in the near-term. Market volatility will come and go, and is both a feature of financial markets and something that is closely monitored and analysed by the Astute Investment Management team – this is a key role that we play. As an investor, your key role is to remember that your investments are in place to fulfil your long-term objectives, and you should avoid any knee-jerk reactions to short-term market noise that may impact your goals.

See you next week.

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