Inflation Is Back and Banking Sector Worries Continue
From interest rates rising again in the USA and UK to Deutsche Bank wobbles, a lot has been happening in the financial markets
The inflation theme is back in the UK and USA, again
The Federal Reserve has decided to raise interest rates once again by a further 0.25%. This takes the current interest rate from 4.75% to 5%. Year to date, there has been a cumulative lift in interest rates amounting to 4.5%.
The good news is that they have indicated that there may be a pause to future interest rate hikes. This would help with some of the uncertainty following the recent bank crisis.
Across the pond in the UK, data was released showing that inflation had gone up to 10.4% in February, reversing the three month decline in inflation rates that had been seen. It seems that food prices are particularly guilty of driving recent inflation.
The Bank of England also decided to raise their interest rates by 0.25% to combat the rampant inflation, taking it to a total of 4.25%.
Further bad news emerged from Germany as results showed a shrinking in their economy in the first quarter, which might point towards a recession.
Following Credit Suisse tumble is it Deutsche Bank’s turn to have a wobble?
The ‘shotgun wedding’ between Credit Suisse and UBS last week seemed to plug the worry hole that was ever growing amongst investors, after a fortnight filled with bank collapses.
However, as part of the deal, the AT1 (Additional Tier 1) bonds at Credit Suisse have been written off.
These are higher risk bonds that were created after the 2008 crash to help banks with capital requirements which helps to reduce debts. However, bond holders usually have greater priority than shareholders, which has been overturned in this deal.
The unusual decision led to a flurry of worry for investors in the banking sector, despite the AT1 bonds being of higher risk.
Deutsche Bank, similar to Credit Suisse, has been plagued with issues in recent years. The markets clearly saw signs that they further didn’t like, as the share price dropped by over 10% in one day.
Traders also rushed to purchase credit default swaps, which are essentially financial instruments that protect them against the collapse of the bank. So, if traders are rushing to buy these instruments, well, it’s fair to say we have an idea what they’re thinking – and it’s safe to say it’s not good.
Toshiba adopts a private solution to shareholders’ ‘fatigue’
Continuing the trend of companies in difficulties, Toshiba in Japan has this week accepted a buyout deal worth $15.2 billion.
If the deal goes through, it would take the company off the stock exchange to being privately owned by a mix of 20 Japanese companies.
Accounting scandals, heavy losses and international activist shareholders have plagued the company, which has caused an ongoing ‘fatigue’ amongst shareholders who want a fair exit from their investment.
TikTok and influencers have taken a bruising
TikTok’s CEO faced a grilling by the US congress, uniting both sides of the political spectrum in a lengthy marathon length battle.
The big confirmation came that ByteDance, the parent company of TikTok, is able to access some American data via TikTok.
The US might look to force a sale of the American arm on the back of the discussions, which China has said they will openly oppose.
If TikTok were to simply be banned, as well as furthering the ongoing spat between the two nations, it might also be seen as a move to boost local social media rivals, including Snap, Youtube and Meta.
Meanwhile, Lindsay Lohan, rapper Akon and a host of other big names have settled on their lack of disclosure crypto promotions by platforms Tronix and BitTorrent.
The SEC, the US financial regulators are showing increased scrutiny of crypto, including promotions, which could change the way that the industry moves.