Week of March 27

Both the Fed and the BOE hiked as expected by 25bps to show confidence in the financial system after UBS forced Credit Suisse to be bought out. Now the markets have a relatively quiet week to digest the latest monetary policy moves before Eurozone flash inflation and China PMIs at the end of the week.

Top Events in Review

The big event from last week was the Fed hiking rates in the middle of the recent banking chaos. The main takeaway was the change in the language from the statement, from talking about continuing rate hikes to evaluating the situation at each coming meeting. Nevertheless, the dot-plot matrix remained the same, with the median of FOMC members expecting the terminal rate at 5.1%. The dovish hike sent DXY nearly 2% lower to 102.00 briefly.

The Fed's meeting was overshadowed by the forced merger of Credit-Suisse and UBS, overseen by the Swiss government to calm markets and shore up the financial sector as many investors worried that the second largest bank in Switzerland would collapse.

The BOE also hiked rates by a quarter of a point, as expected, with the now usual 7-2 vote split. This came in the wake of the UK reporting a surprise jump in inflation, not only above expectations but above the reading of the prior month, dashing hopes the country had managed to escape double-digit price increases. Markets resorted to pricing in further rate hikes as core inflation rose. Cable jumped to $1.2350 momentarily but receded. 

In geopolitics, China President Xi met Russian President Putin in Moscow, where the two countries signed a collaboration agreement on military and energy, though stressed that it didn't amount to becoming allies. 

The UK Parliament voted for the Windsor framework that was seen as resolving the Northern Ireland Protocol issue despite objections from the DUP and some Tory backbenchers. The issue of government at Stormont remains unresolved.

Biggest Market Movers

Shares in US regional banks fluctuated widely on reports that some of the more vulnerable were exploring acquisition options. Gold briefly moved above $2,000/oz on concerns about the economic outlook, and WTI fell to $64.40/bbl with reports circulating that OPEC would stick with its production agreements but recovered towards $70/bbl by week's end. On the other hand, Silver added more than 2% to its recent gains, reclaiming $23/oz, with the handle confirming or rejecting bulls probably during the week.

Top Events in  the Week Ahead

The week is relatively sparse in terms of data events leading up to the two main events on Friday. 

ECB to See Whether Core Remains Sticky

Following the double rate hike announced by the ECB but an insistence on being data-dependent for the next meeting, there is likely to be considerably more attention on the release of March flash Inflation figures. Topline inflation is expected to come down to 7.8% compared to 8.5% prior, but core inflation is expected to remain sticky at 5.5% compared to 5.6% in February. Also, the Eurozone is expected to report an unchanged unemployment rate of 6.7%. EUR/USD bulls might attempt to retake $1.10, adding to the positive performance from under $1.07 to $1.0930, provided it maintains bias up and holds firm above the former support.

Chinese PMI Back in Focus

China is expected to publish its official PMI measure for March, with the consensus seeing a solid deceleration in the services sector to 50.9 compared to 56.3 prior. Manufacturing is also expected to slow down but still expand at 51.2 compared to 52.6 in February. China's 50 index logged a 2% last week, which might continue towards 13600.

Consumer Data Take Center Stage 

Also, the US will release its Core PCE Price index and Personal Spending and Income figures on Friday. The University of Michigan will publish its Consumer Sentiment Index, which is expected to lose some optimism but remains broadly expansionist at 63.4 compared to 67.0 in the prior month. 

Germany, Switzerland and Japan will also report retail sales, which are expected to show declines compared to prior measures. German GfK Consumer Confidence is expected to remain negative but improve to -28.0 compared to -30.5 prior. German's 40 index closed last week more than 2% higher, bringing 15700 back on bulls' radar.

The US will also publish the Conference Board Consumer Confidence index, which is expected to weaken to 101 compared to 103 prior. USD/JPY losing the base at 130.00 might kick the door below 128.00 wide open.

Other Events and Earnings

Monday has German Ifo Business Climate figures. Tuesday features the US Case-Shiller Home Price Index. Wednesday sees UK mortgage approvals figures. Thursday has Swiss KOF leading indicators. Among corporate earnings are releases from BioNTech, Carnival, John Wood, Micron, Next plc, Cintas and Paychex