Highlights: US stocks fell on Friday as concerns around the banking sector linger. Despite the major indexes closing lower, the S&P 500 and Nasdaq finished the week in the positive with gains of 1.2% and 4.1%, respectively, while the Dow was down slightly at 0.4%. The price of oil tumbled as well amid market uncertainty and reached its lowest level since Dec 2021. 

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OECD calls on central banks to keep raising rates (3 min read)
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The Organization for Economic Cooperation and Development (OECD) has urged central banks to keep raising interest rates despite financial market turmoil as inflation remains the biggest threat to the global economy. The OECD upgraded its 2023 growth forecast from 2.2% to 2.6%. However, the brighter outlook assumes monetary policy should remain restrictive until clear signs of inflationary pressures are durably lowered. The organization also does not expect interest rates to fall until 2024 at the earliest.

China makes surprise rate cut to boost banking liquidity and the economy (2 min read)
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The People's Bank of China (PBOC) surprised markets by cutting the reserve requirement ratio (RRR) for almost all banks by 0.25% to boost liquidity and prop up the economy. China’s move followed a week of turmoil in global financial markets triggered by the failure of regional US banks. The PBOC had already injected hundreds of billions of yuan into the banking system since January, mainly through a medium-term lending facility. Government officials had previously hinted that monetary policy this year would be largely stable.

First Republic shares slid almost 33% after deposit infusion, dragging down other regional banks (2 min read)
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Shares of First Republic plunged more than 30% on Friday and was the worst performed in the SPDR S&P Regional Banking ETF (KRE). Other regional bank stocks also fell between 5% to 19% as a result. Those losses came even after 11 major US banks pledged to deposit $30 billion in First Republic as a vote of confidence in the company. The trigger seems to be concerned that the infusion may not be enough. Several analysts downgraded First Republic stock, noting the bank may need an additional $5 billion and is still likely to explore a sale.

UBS is buying Credit Suisse in bid to halt banking crisis (5 min read)
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UBS has announced an emergency rescue deal to buy Credit Suisse, aimed at stabilizing Switzerland's banking sector following the recent failure of two US banks. UBS is paying 3 billion Swiss francs for Credit Suisse, which is about 60% less than the bank’s worth when markets closed on Friday. Credit Suisse shareholders will be largely wiped out, receiving the equivalent of just 0.76 Swiss francs in UBS shares for stock that was worth 1.86 Swiss francs on Friday. The deal will not require shareholder approval after the Swiss government agreed to change the law.

JP Morgan Adds Actively Managed China Equity ETF (3 min read)
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JP Morgan has launched the JPMorgan Active China ETF (JCHI), which is actively managed to invest in securities economically tied to China. The fund's portfolio managers are backed by research analysts on JP Morgan's Greater China team and use a bottom-up approach to select stocks while taking into consideration of macro and policy-related data in the selection process. The portfolio will include 40-70 securities and holdings will be scrutinized through an ESG lens. JCHI is listed on the NYSE and is the first active China ETF offered by a globally known brand.

Small Cap ETFs’ Fuel Evaporates as Rates Rise (4 min read)
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The iShares Russell 2000 ETF (IWM), a leading US small-cap ETF, surged 14% this year after dropping 22% in 2022, but the rally was halted after the last rate hike and it’s been downhill since. US small-cap ETFs in general saw the most significant outflows among the equity category, potentially a bad sign for small-cap stocks. The rising interest rate environment makes it harder for smaller companies to gain funding, and they suffer more in the event of a recession, which becomes more likely as credit tightens.

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Thomas

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