11th March 2023 – 17th March 2023 | Another week in the markets
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This week, US bank regulators announce emergency measures to prevent bank rundowns, US-Russia and US-China tensions heighten, and the ICC issues an arrest warrant against Putin.
- After Silicon Valley Bank and Signature Bank collapse, US bank regulators loosen short-term lending terms; Major US banks provide a $30 billion lifeline to First Republic Bank, and Credit Suisse secures funding from the Swiss National Bank
- Russian jet causes US drone to crash after intentionally spraying it with fuel over the Black Sea, while Chinese cyberattacks increase in both frequency and sophistication, heightening the threat of Chinese cyber espionage in the US, according to Google’s researchers
- OpenAI launches GPT-4, a more advanced AI technology allowing image prompts and facilitating responses of over 25,000 words, and Microsoft announces Copilot, integrating AI into Microsoft 365 apps
- European Central Bank hikes benchmark interest rate by 50 basis points, while Bank of England and Bank Indonesia leave rates unchanged
- The International Criminal Court (ICC) issues an arrest warrant against Vladimir Putin over illegally deporting children from Ukraine to Russia
Taking stock | To the blood banks | Troubles inflating | Daggers uncloaked | Latest chitchat | A rest warrant | Invest wisely
US stocks had a volatile week, given the banking sector crisis and contagion fears. Despite that, S&P rose 1.43% for the week, and the tech-heavy Nasdaq climbed 4.41%. The Dow, however, slid 0.15%.
To the blood banks
After the collapse of Silicon Valley Bank (SVB) due to bond-related losses last Friday, another US bank, Signature Bank, was also shut down by US bank regulators over the weekend. The closure of two large US banks not only spooked depositors in the country but also investors globally.
The Federal Deposit Insurance Corporation (FDIC) protects up to $250,000 per depositor per account, but these two failed banks had a large proportion of uninsured accounts. The Biden administration on Sunday announced emergency measures, including full protection to all depositors of SVB and Signature Bank, in an attempt to prevent contagion.
However, in her speech this Thursday, Treasury Secretary Janet Yellen said that such protection will not be provided to all banks that fail but only to the ones that pose a systemic risk to the financial system. The Federal Reserve has also eased its borrowing terms for banks for short-term funding to offer greater liquidity to meet depositors’ needs.
First Republic Bank, a regional lender, was about to go bust in the aftermath of these two banks collapsing, but this week 11 of the biggest US banks, including JPMorgan Chase, Wells Fargo, Citigroup, and Bank of America, offered it a $30 billion lifeline. Switzerland’s second-biggest bank, Credit Suisse, was also able to secure short-term credit of up to 50 billion Swiss francs from the Swiss National Bank after its shares plunged to a new record low of about 30% on Wednesday. Despite these massive support deals, both First Republic and Credit Suisse’s shares plummeted again on Friday.
Last year, central banks around the world were increasing interest rates in an attempt to curb record-high inflation levels. But now, several countries are stepping away from an aggressive contractionary monetary policy. For instance, the Bank of England Governor has signalled to its intention to adopt a wait-and-watch approach for raising rates. Indonesia did not raise its benchmark rates for a second straight month.
On the other hand, European Central Bank announced a 50 basis points hike on Thursday, bringing its primary benchmark rate to 3%. Given the recent banking sector crisis, the Federal Reserve will have to make a tough decision regarding interest rates in its policy meeting next week.
Inflation levels worldwide are still way above target levels, and the Organisation for Economic Cooperation and Development (OECD) says central banks need to continue raising interest rates. The UK, especially, cannot afford to stop raising rates because it has one of the highest inflation rates, high reliance on gas, and low labour productivity. According to OECD, the UK will be the only G20 economy apart from Russia to shrink this year.
Source: The Guardian
Since the Russia-Ukraine war last year, US and Russian aircraft have been operating in the Black Sea, and for the first time this week, there has been an incident that could further the tensions between the two leading nuclear powers. On Tuesday, a Russian fighter jet flew exceptionally close to a US drone, spraying fuel on it and cutting off its camera system. While Russia denies contact, the US released footage of the same on Thursday — the drone is yet to be retrieved from the sea.
US-China tensions have also been heightened since an alleged Chinese surveillance balloon was spotted in the US airspace last month, and there has been a push to ban the social media app TikTok over data security fears. This week, researchers at Google revealed that state-sponsored cyberattacks from China on US government and private sector networks have increased and vastly improved in sophistication and ingenuity.
As if OpenAI’s ChatGPT had not already charmed millions of users, this week, the company released GPT-4, a more advanced AI system. One of the most remarkable improvements here is GPT-4’s ability to understand not only text but also images. Another noticeable capability is producing responses of over 25,000 words — GPT-3.5’s responses are limited to about 3,000 words. That’s enough to write a short book! GPT-4 also scores 40% higher on certain factuality tests and allows developers to change the AI’s tone and style of response. As of now, GPT-4 is not available for free. You can either subscribe to the $20/month plan to access it or join the waitlist.
But GPT-4 is not the only AI update for the week. Microsoft announced Copilot, Microsoft 365’s new AI-powered tool, which will work across all 365 apps, including Word, Excel, Outlook and Teams. Copilot’s Business Chat feature will almost work as a personal assistant, performing a range of functions, such as summarising information from emails, meeting transcripts, and chats.
A rest warrant
On Friday, the International Criminal Court (ICC) issued an arrest warrant against Putin for the war crime of illegally deporting children from Ukraine to Russia along with Russia’s commissioner for children’s rights, Maria Lvova-Belova. While this is unlikely to put Putin behind bars any time soon, it will restrict travel — if he steps into any of the 123 member countries of the ICC, he could be arrested and sent to The Hague for trial.
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