Week of Mar 20

A week focused on worries that the global banking system might be in danger ended on a somewhat relieving tone as Credit Suisse received government support. The ECB raised rates by 50bps, however, potentially pressuring European banks. Now, attention is turning to whether the Fed will follow through on the "couple" of rate hikes that Fed Chair Powell promised after the last meeting.

Top Events in Review

The week started with the fallout from three US banks being taken over by the FDIC to protect depositors' funds. The Fed had to step in, where it announced a new mechanism, the BTFP, to backstop banks that had unrealised losses on their books which would make it challenging to meet withdrawals. 

In response to the CPI report on Tuesday, which came in largely in line with expectations, many Fed watchers anticipated that the central bank would raise interest rates by a quarter-point only, and markets rose as the pressure on banks eased. 

UK's Jeremy Hunt presented the Spring Budget on Wednesday, where he said inflation is expected to drop near 3% by year's end and the UK is likely to avoid recession, amongst other reforms. Markets reacted positively as gilt and mortgage rates saw an overall decrease. 

On Thursday, the ECB, judging that the SNB's actions to shore up Credit Suisse were sufficient and wary of sending a signal of concern to the markets, carried through with its expected 50bps hike.

By the end of the week, banks had drawn down over $11B from the new BTFT facility but remained under pressure as eyes turned to First Republic in the US and Credit Suisse in Switzerland. Both received support from their respective central banks, with the former receiving deposits worth $30B from 11 major US banks to head off any potential run. By the end of the week, markets had begun to stabilise.

Biggest Market Movers

Among key market movers during the week was WTI crude, which fell below the $70/bbl threshold that the White House said would trigger the restocking of the Strategic Petroleum Reserve. After some 15% crash from top to bottom during the week, WTI remains vulnerable under the barrier, with next support closer to $60/bbl.

Crude prices were under pressure, but gold pushed nearly 3.5% higher and silver almost 7%, as markets worried about an incipient recession. The yield curve inversion in US treasures narrowed by over 40bps, as the 2-year yield fell below 4%. Markets moved to price in two rate cuts by the Fed before the end of the year, with gold traders eyeing $1975/oz next.

Top Events in  the Week Ahead

Fed and BOE Back on Meeting Tables

Two major central bank rate decisions are expected to dominate the coming week. 

First is the Fed on Wednesday, which is generally expected to raise rates by 25bps. Forecasts for the Fed have swung wildly over the last couple of weeks, bouncing between a "double" rate hike to briefly a majority of traders expecting no rate hike. 4-out-of-5 traders are forecasting a quarter point, with considerable anticipation for whether the Fed Chair will use the post-rate-decision presser to telegraph another rate hike, pause, or split the difference and create more uncertainty by saying the Fed will be data-dependent. USD/JPY's bounce at 132.00 could see losses reverse to 135.00 unless 131.00 gives in to pressure, opening the door to 129.00.

The next day, the BOE is also expected to hike by 25%, having already managed its own interest rate crisis back in September of last year. Once again, the focus will be on the vote split as the OBR, and the Treasury differ on whether the country will slip into recession. EUR/GBP might fall into deeper territories near 0.8650 for the year, provided it losses 0.8720. Otherwise, an attempt to reclaim 0.8820 might be seen.

Inflation Figures Could Help Central Banks

Canada is expected to report another drop in inflation to 5.2% from 5.9% after the BOC paused rate hikes at the last meeting. 1.36 is support, and 1.40 is resistance for the loonie.

UK inflation figures are published the day before the BOE meets, and the forecast is for inflation to come out of triple digits, dropping to 9.6% from 10.1% prior. Cable could go as high as 1.24 on hawkish aftermath or slide towards 1.18 in the opposite scenario.

Japan is also expected to report a drop in inflation to 3.3% from 4.3%, as traders are still trying to evaluate how hawkish the new BOJ governor will be at the next meeting.

Other Events and Earnings

Monday has German PPI figures. Tuesday sees the release of RBA minutes as well as US existing home sales. The BOC publishes its minutes from the last meeting on Wednesday. For Thursday, the focus is likely on US current account figures. Friday has UK GfK Consumer confidence and retail sales, while the US publishes durable goods orders. 

Key corporate earnings reports include Foot Locker, Nike, Kingfisher, GameStop, Nestle, Accenture, General Mills, Continental, and Darden Restaurants.