This week saw a calm slowly return to stock markets as severe banking contagion fears slowly faded. The Federal Reserve took charge of proceedings on Wednesday and reassured US investors that the US banking sector is stable. It hiked by 25bps, but kept the inflation battle going with Powell stating that he did not expect any rate cuts this year. The UK saw another surprise inflation print and this was met by the Bank of England maintaining its stance on tackling high inflation with a 25bps rate hike. This means that the Fed, BoE, and ECB are betting on banking blues fading into the background as they keep up their inflation fights.
Other key events from the past week
- Bank crisis calm? Initial shock fades, Mar 20: Concerns over the first US bank failures in more than 10 years and Credit Suisse’s takeover by UBS started to fade. However, watch for any fresh bank failure news to spark risk aversion.
- US interest rate decision: UK budget, Mar 22: The Fed was expected to hike rates by 25 bps and it did, but the dot plot still showed the Fed expecting no rate cuts this year. The decision kept hiking options open for the Fed, but STIR markets now see only a 51% chance of another rate hike next month.
- GBP: UK Rate Decision, Mar 23: The Bank of England responded to a surprise uptick in inflation this week by hiking by 25bps. However, the BoE also revised growth slightly higher for Q2 this year, so that will be welcome relief that growth is at least moving higher in the near term.
Key events for the coming week
- Banks scrutiny: Risk factor, Mar 27: Although markets started to calm this week over banking contagion fears be aware that any further news of major banks in distress will worry markets and result in sudden stock falls.
- Seasonal Insights: Is there still time to put Merck to work?
- EUR & USD: Inflation focus, Mar 31: Eurozone inflation is expected to fall again to 7.8% from 8.5% from the headline and US Core PCE will both be released on Friday. However, will there be another shock in inflation pressure for the eurozone like we saw for the UK this week? Inflation remains a key focus.