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As recently as last week, markets were braced for the return of large Fed hikes but the swift collapse of SVB has changed those expectations, with market pricing in an 80% chance of a 25 basis point hike next week.
All the sectoral indices ended in the red with power, realty, information technology, PSU Bank, metal and auto falling 1-2 percent.
The sudden shutdown of SVB Financial triggered concerns about risks to other banks resulting from the U.S. Federal Reserve’s sharp interest rate hikes over the last year. It also spurred speculation about whether the central bank could slow the pace of its monetary tightening.
“There is escalating tensity in the global financial world; this is despite non-U.S. banks’ exposure to US regional banks being minimal, with the global systems being well capitalized and flush with liquidity,” said Stephen Innes, managing partner at SPI Asset Management.
“And that argument applies not just to the U.S., but around the globe … Regardless of the fact that the authorities in the U.S. have provided that security assurance that depositors will be ok, investors don’t know if they’re going to be ok, and therefore they’re running for the door.”
About 764 shares advanced, 2,748 shares declined and 145 shares were unchanged on March 13 as the market extended losses to the third session on weak global cues following the weekend collapse of Silicon Valley Bank in the US
Amid weak global cues and concerns arising out of the collapse of three banks in the United States, all sectoral indices ended in the red. Auto, bank, realty and PSU bank were down 2 percent each
Worries were growing recently that interest rates are set to go higher than expected after the Fed Reserve said it could reaccelerate the size of its rate hikes. The Fed is focusing on wage growth in particular in its fight against inflation. It worries too-high gains could cause a vicious cycle that worsens inflation.
Spot gold was up 0.5% at $1,877.30 per ounce, as of 0051 GMT, after hitting its highest since Feb. 3 earlier in the session at $1,893.96. U.S. gold futures gained 0.8% to $1,882.10. The dollar index was down 0.4%, making bullion cheaper for buyers holding other currencies.
The SVB collapse led investors to speculate that the Fed would now be reluctant to rock the boat by hiking interest rates by a super-sized 50 basis points this month, with the spotlight firmly on Tuesday’s inflation data.