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Wall Street weaker and FTSE closes with modest gains as investors remain cautious

FTSE SVB (Silicon Valley Bank) logo is seen in this illustration taken March 19, 2023. REUTERS/Dado Ruvic/Illustration
Wall Street and FTSE under pressure as the banking turmoil keeps investors cautious. Photo: Dado Ruvic/Reuters (Dado Ruvic / reuters)

The FTSE 100 and European stocks edged slightly higher on Tuesday as investors remain cautious despite easing concerns over contagion in the banking sector following the collapse of Silicon Valley Bank.

The FTSE 100 (^FTSE) gained 0.24% to close at 7,489, while the CAC 40 (^FCHI) in Paris rose 0.18% to 7,090 points. In Germany, the DAX (^GDAXI) finished flat at 15,138.

Bank of England

Bank of England (BoE) governor Andrew Bailey said a wave of early retirements could force up inflation, leading to higher interest rates.

Speaking at the London School of Economics on Monday evening, Bailey said that a sharp decline in the number of people in the workforce was “part of the reason why we have had to raise Bank Rate by as much as we have”.

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That trend, he warned, will drive up prices and mean borrowing costs may need to be higher.

He said: “We should expect this to put upward pressure on inflation in a way that would call for a higher level of interest rates to dampen demand.”

Bailey said the rise in inactivity of people aged 50 to 64 was “particularly striking”.

Read more: UK shop prices hit record high with inflation set to make Easter even worse

Bailey said the BoE had not already decided that interest rates needed to increase further but noted that inflation of 10.4% in February was “much too high”. He stressed that the Monetary Policy Committee (MPC) would assess the “emerging evidence” before opting to lift rates again.

Last week, the BoE raised the Bank rate to 4.25% — its highest level since 2008.

The European Central Bank, US Federal Reserve and Swiss National Bank have also all raised interest rates this month.

Markets also took note of Bailey speaking at the Treasury Select committee about the Silicon Valley UK arm's collapse.

The governor of the Bank of England has said that the collapse of Silicon Valley Bank (SVB) was the quickest seen since Barings Bank failed in 1995.

Andrew Bailey told MPs that the UK subsidiary of the Californian lender experienced a 30% run on its deposits in a single day as panic spread through markets and savers.

Despite the run, Silicon Valley Bank's UK arm as able to meet those requests, which made its sale process to HSBC (HSBA.L) easier.

Read more: Europe tops world for crypto startups with London getting most VC funding, study says

US and Asia

Wall Street was mixed on Tuesday, while bond yields continued to extend gains as investors monitored the latest developments in the banking sector after the sale of Silicon Valley Bank.

The Dow Jones (^DJI) rose 0.21% to 32,499 points. The S&P 500 (^GSPC) slipped 0.15% to 3,971 points and the tech-heavy NASDAQ (^IXIC) lost 0.64% to 11,692.

Banks will dominate the headlines again this week with the earnings and economic calendars in sight. The Senate Banking Committee is holding a hearing on bank failures on Tuesday, with the witness list including FDIC chairman Martin Gruenberg, Federal Reserve vice chairman Michael Barr, and Treasury undersecretary Nellie Liang.

Barr wrote in a statement ahead of the hearing that the failure of SVB reeked of "mismanagement."

"To begin, SVB's failure is a textbook case of mismanagement. The bank had a concentrated business model, serving the technology and venture capital sector," Barr's testimony reads.

In Asia, Tokyo’s Nikkei 225 (^N225) rose 0.15% to 27,518 points, while the Hang Seng (^HSI) in Hong Kong climbed 1.10% to 19,782. The Shanghai Composite (000001.SS) lost ground, falling 0.18% to 3,245 points.

FTSE 100

Back in London, Ocado Group (OCDO.L) lost 2.57% after Ocado Retail, despite its joint venture with Marks and Spencer (MKS.L) reporting a rise in revenue.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: "A relief ripple is helping stocks make some gains amid hopes that the volatility, which has wracked the banking sector, has eased off.

“Right now, worries about the impact of banking turmoil are taking a back seat and the Bank of England is intent on steering consumer prices lower. Governor Andrew Bailey stressed in his speech in London last night that interest rates may have to move higher if there were signs of persistent inflationary pressure.”

Spirits maker Diageo (DGE.L) has appointed its first female chief executive after announcing the retirement of Sir Ivan Menezes after a decade in the top job.

Read more: UK braced for further price rises as inflation set to worsen, S&P warns

Debra Crew will step up from her current position as chief operating officer and lead the FTSE 100-listed business from 1 July.

Across the wider FTSE 250 index (^FTMC), gambling company William Hill (888.L) has been hit by a record £19.2m ($23.6m) fine by the UK gambling regulator.

Three gambling businesses owned by the company will pay the sum for "widespread and alarming" social responsibility and anti-money laundering failures, the Gambling Commission said.

Pound vs dollar

The pound (GBPUSD=X) gained ground against the dollar at over $1.23. Sterling (GBPEUR=X) rose nearly 0.15% against the euro, trading near €1.14.

Oil markets

Meanwhile, Brent crude (BZ=F) bounced back and was trading at around $78 per barrel, with markets focused on developments in the banking crisis and indications of strengthening demand in China.

"Though risks remain in the banking system amid the recent event, dip-buys in crude oil could be the prevailing trend in the near term," said Tina Teng, analyst at CMC Markets.

Watch: Fed find an SVB buyer... Are we out of the woods?

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