Banking worries returned this week as First Republic’s earnings reports showed a worrying fall in deposit levels. This soured sentiment midweek despite the strong tech earnings for both Microsoft and Google. Markets are now approaching a seasonally weaker time of the year and investors are fearing a summer slide for stocks as banking worries re-emerge. This is making stock buyers nervous. The stage is set for next week’s Fed meeting to show some significant volatility, but expect any worsening of the First Republic situation to give the Fed reason to hesitate about hiking rates next week.

Other key events from the past week

  • Banking fears: First Republic, April 24: Bank’s deposit levels have been a key focus this earnings season and First Republic’s bank missed on both revenue and deposits. The key risk is that collapsing banks end up creating wider ripples that weigh heavily on the global economy.
  • Terrific Tech earnings: Microsoft & Alphabet, April 26: Microsoft beat earnings estimates for its EPS and revenue headlines with strength in its cloud computing business. Alphabet (Google) also had top and bottom line beats.
  • JPY: BoJ rate meeting, April 28: Analysts had been speculating that BoJ would change the yield curve control policy at this week’s meeting. Expectations are, with the BoJ meeting still to come, that the YCC will remain unchanged. However, should the BoJ announce a shift in policy watch out for a possible JPY strength.

Key events for the coming week

  • USD: Fed Rate Decision, May 3: The Federal Reserve meets next week and the key focus is whether it sees any rate cuts this year. If the Fed maintains a hawkish stance, despite recent bank worries with First Republic woes, then stocks could be vulnerable to a short, sharp snap lower.
  • Seasonal Insights: Summer slide for stocks ahead?
  • EUR: Rate Decision, May 4: Short-term interest rate markets are pricing in an 81% chance of a 25bps rate hike at the time of writing and a nearly 1 in 5 chance of a 50bps rate hike. Will the ECB surprise with a larger 50bps hike?

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