The Stock Market is Thriving, But Inflation Poses a Threat

How is the stock market doing?

Last week was relatively calm for economic and financial news, but major equity indexes still gained ground.

Last week also marked the end of the first quarter of 2023. The Nasdaq Composite, which has a lot of technology companies, rose over 16% for the quarter. The S&P 500 Index, which represents a broad range of stocks, increased approximately 7%.

In a nutshell, last week went pretty well for the markets. The S&P 500 index went up 3.48 %, The German DAX index is up 3.27 % and the European STOXX 50 index went up with 3.56 %.

In particular, the banking sector and small cap stocks have performed well. 

At the moment no big news is good news. This due to the uncertainty caused by the bank collapses.

The financial sector has been tested, and it seems to have passed

European banking stocks dropped almost 15% in March, but in the past week, they have risen by over 5%.

After the 2008 financial crisis, stricter rules were implemented to prevent banks from cracking. But during his presidency, Trump tore down some of these restrictions, but which Biden now wants to  re-implement.

The Biden administration proposed stricter regulations for mid-sized banks with assets between USD 100 billion and USD 250 billion.

These stricter regulations include more frequent stress tests and stricter capital and liquidity requirements, to align them with rules for larger banks.

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UBS’s takeover of Credit Suisse will now be investigated

The Swiss government forced UBS to buy out Credit Suisse for 3 billion Swiss francs to prevent the bank from collapsing and avert a potential financial catastrophe. 

The forced takeover has sparked outrage in Switzerland, with Credit Suisse's stock plummeting 60% on the day after the takeover.

The Swiss attorney general has issued investigation orders to several government agencies, in order to investigate the events surrounding the takeover and identify possible violations of the law.

The merger could cost up to 40,000 jobs in the two banks, and Swiss political parties have called for a commission to investigate the proceedings.

Swiss Finance Minister Karin Keller-Sutter has defended the merger, stating that the bank's investors would have lost their entire investment if the authorities hadn’t stepped in.

Inflation rises again…

The most important figure of core inflation rose from 5.6% in February on an annual basis to 5.7% in March across the Eurozone. Core inflation refers to inflation where prices for energy and food are filtered out.

However, actual inflation in the eurozone decreased to 6.9% in March from 8.5% in February.

But now experts anticipate that the ECB will continue to adjust the interest rates in an uphill direction. The expectation is that ECB will raise the interest rate to 3.5% from the current level of 3%.

Things look worse in the three Baltic countries where inflation is still moving upwards from 15% to 17%.

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The Chinese company Alibaba rises by 16%

Alibaba announces that it will split the company into six independent companies, each of which can be listed on the stock exchange.

Alibaba is one of China's largest tech companies, which started its life as an e-commerce business and at its peak had a market value of over $800 billion. 

However, it has now been reduced to around a quarter of that.

The six companies will focus on:

- Cloud computing

- E-commerce in China

- Global e-commerce

- Digital mapping and food delivery

- Logistics

- Media and entertainment