As markets continue to be roiled by bank failures and ongoing turmoil, investors are eagerly looking forward to some stability in the coming week. Here are the top 5 things to watch for in the markets:
Investors are bracing themselves for more turmoil in the banking sector, following the collapse of two U.S. lenders earlier this month, and the forced takeover of troubled Credit Suisse by rival UBS, along with the writedown of some of its contingent convertible bonds. This has resulted in concerns that other nasty surprises may be lurking, as the series of aggressive rate hikes by the Federal Reserve over the past year ripple through the economy.
Tumultuous First Quarter
As the tumultuous first quarter draws to a close, investors are looking ahead to what the second quarter might bring. What started as a positive month with the biggest rush into equities for the first month of the year on record, quickly turned into a frenzy of market volatility. This was caused by a slew of crypto companies collapsing, U.S. regional banks stocks tanking in the wake of Silicon Valley Bank’s collapse, and Credit Suisse imploding. Federal Reserve Chair, Jerome Powell, has warned that banking stress could trigger a credit crunch with “significant” implications for a slowing U.S. economy.
The economic calendar for the week ahead is relatively quiet, with Friday’s core PCE price index being the highlight. This is the Fed’s favored measure of inflation, and its acceleration in January added to concerns over the prospect of a more hawkish Fed. Other reports include data on consumer confidence for March, pending home sales, revised GDP, and initial jobless claims. Several Fed officials, including Fed Governor Philip Jefferson, Boston Fed President Susan Collins, Richmond Fed President Tom Barkin, and governors Christopher Waller and Lisa Cook, are also due to speak during the week.
The Eurozone is set to release closely watched inflation data on Friday. While headline inflation is expected to slow, the underlying rate of inflation, which strips out volatile elements including food and fuel prices, is expected to accelerate. The European Central Bank raised interest rates by 50 basis points earlier this month to 3%, but some policymakers are now calling for more cautious steps as past rate hikes are now taking hold, and the economy is starting to respond. Meanwhile, the banking crisis has prompted fears that lending will slow, acting as a drag on the economy. Investors will be on the lookout for any indications on how policymakers are viewing the inflation threat amid ongoing turmoil in the banking sector, including speeches from Bundesbank Chief Joachim Nagel and ECB President Christine Lagarde.
China PMIs and Tokyo Inflation
On Friday, Chinese PMI data will be closely watched, as market watchers try to gauge the strength of the recovery in the world’s second-largest economy in the wake of the lifting of pandemic restrictions. In Japan, Tokyo inflation data is expected to show that inflation topped the Bank of Japan’s 2% target for the tenth straight month. Expectations are high that incoming BOJ Governor Kazuo Ueda will oversee the unwinding of yield curve controls and negative interest rates during his tenure after a decade of unprecedented stimulus by his predecessor.
With a relatively quiet economic calendar, the markets will be focusing on the ongoing banking sector turmoil and the fallout from the forced UBS-Credit Suisse tie-up. Additionally, investors will be monitoring U.S. data and Eurozone inflation data for any signs of the market turmoil making a recession more likely. Finally, China PMI data and Tokyo inflation data will be in the spotlight as market watchers continue to try to gauge the strength