By Noreen Burke
Investing.com – Amid the aftermath of the biggest bank failure since the 2008 financial crisis, investors will focus next week on US inflation data, which will be a key test for markets already weighed down by campaign worries the Federal Reserve to curb inflation . Elsewhere, another big rate hike is expected from the European Central Bank, the UK is set to announce its latest budget and China is set to release a spate of economic data. Here’s what you need to know to start your week.
- risk of infection
Following Friday’s dramatic collapse of Silicon Valley Bank (NASDAQ:SIVB), investors are growing increasingly nervous that the Fed’s anti-inflation campaign has exposed vulnerabilities in the financial system that could grow if it accelerates its rate hikes.
SVB, which focuses on tech startups, saw the value of bonds it had parked its money on fall due to higher interest rates. A plan to boost the value of its holdings failed, prompting a run on the bank before regulators stepped in on Friday, closing the bank and placing it in receivership.
The rapid collapse sent global markets into turmoil and sent banking stocks reeling amid fears of contagion to the financial sector and beyond.
“The concerns emanating from the financial sector are generally spreading throughout the market,” said Michael James, managing director of equities trading at Wedbush Securities. “Combining the Silvergate (NYSE:SI) debacle with the collapse of Silicon Valley Bank… creates a ripple effect of concerns about overall market stability.”
- US inflation data
While Friday’s mixed US jobs report eased some worries about the prospect of a 50 basis-point rate hike at the forthcoming Fed meeting, a hotter-than-expected inflation reading on Tuesday could reignite fears among investors who were already feeling the effects of the SAR’s failure are on eggshells.
Economists expect monthly inflation to rise 0.4% in February after rising 0.5% in the previous month, for an annual gain of 6.0%.
Last week, Fed Chair Jerome Powell said the Federal Reserve is likely to hike rates higher than previously expected if upcoming data shows the economy remains hot after nearly a year of tightening, but added that still no decision has been made on the forthcoming March session.
Other economic data to watch for in the coming week are February retail sales, producer price inflation, housing starts and industrial production.
- ECB rate hike
The ECB is expected to hike rates a further 50 basis points at Thursday’s meeting, after raising rates by 3 percentage points since July to tame inflation.
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Data showing that underlying inflation has ticked higher in the euro zone over the past month increased concerns that price pressures are proving persistent.
Markets are pricing in another 50 basis point hike at the ECB’s May 4th meeting and the minutes of the ECB’s February meeting did little to challenge those expectations.
“Core inflation and other measures of underlying inflation are likely to remain more difficult, with only limited signs of stabilization so far,” the ECB minutes say. “Further hikes were needed for the Governing Council’s interest rates to enter restrictive territory.”
ECB President Christine Lagarde is likely to be briefed on what interest rates will ultimately be at Thursday’s press conference following Thursday’s policy meeting.
- UK budget
Britain’s Chancellor Jeremy Hunt will present his spring budget on Wednesday, and after September’s market turmoil, when Hunt’s predecessor Kwasi Kwarteng and former Prime Minister Liz Truss announced generous tax cuts, forecasters expect Hunt to make keeping public finances a priority.
With this in mind, the main focus for markets will be the growth and credit forecasts that will be released alongside the budget.
The Office for Budget Responsibility forecasts GDP growth of 1.3% in 2024. The Bank of England forecasts a slight decline. An OBR downgrade could affect sterling, but the pound is moving mainly on interest rate differentials, with US interest rates expected to rise further than UK rates
UK government borrowing is expected to fall, potentially supporting Gilts, but an expected extension of a program to support household energy bills could be seen as inflationary.
5. China dates
China is due to release its first retail sales and industrial production data of the year on Wednesday, which will give market watchers a glimpse into whether Beijing’s new 5% growth target is as modest as many analysts think.
The data comes after Xi Jinping secured a landmark third term as president during Friday’s week-long National People’s Congress.
Li Qiang, best known for overseeing Shanghai’s tight COVID-19 lockdowns, was confirmed as prime minister, replacing the retired Li Keqiang, who was widely seen as on hiatus as Xi tightened his grip on the economy .
Li’s job will now be to lead the resurgence of the world’s second largest economy. China grew just 3% in 2022, its worst result in decades.
–Reuters contributed to this report
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