Marketmind: Ready or not! Here comes US inflation data

1:35 am Tuesday, March 14th, 2023

A look at the day ahead in European and global markets from Ankur Banerjee

Investors are struggling to find their risk appetite this week, with markets jittery in the wake of the stunning collapse of Silicon Valley Bank and measures by U.S. authorities to stem contagion risks.

And yet, global banking stocks have been brutally hit, with Japanese banks sinking to their lowest in nearly three months on Tuesday. The dollar remains pinned near a one-month low, while oil prices fell more than $1 and MSCI ex-Japan index languishing at more than two month lows. And while the two-year U.S. Treasury yield was up 16 basis points at 4.109% on Tuesday, it remained far off last week’s high of 5.085%.

All of that means that the market is ready to believe the Fed may just stay pat and not hike next week, with peak rates not far off. Traders are even pricing in rate cuts by the end of the year, a far cry from expectations last week of interest rates staying above 5% through 2023.

The tentativeness might not pass through to Europe, though, as futures indicate stocks might be in for a higher open. Whether they sustain any gains remains to be seen. Investors will be keen to see if the worst is over for European banking stocks, with eyes on the STOXX banking index, which clocked its biggest one-day percentage drop in a year on Monday.

The spotlight will be firmly on U.S. inflation data for February, due later in the day, when consumer prices are seen to have risen at a solid pace, but economists are divided on whether the data will be enough to push the Fed Reserve to hike rates again next week.

Graphic: US 2-year Treasury yield sinks SVB, Signature Bank closures- https://www.reuters.com/graphics/USA-BONDS/gdpzqmzkmvw/graphic.jpg

Graphic: Bank run fears drive change in odds for March rate hike- https://www.reuters.com/graphics/USA-BONDS/gdpzqmzkmvw/graphic.jpg

Key developments that could influence markets on Tuesday:

Economic events: CPI data from Netherlands, Finland, Spain and the United States

(Reporting by Ankur Banerjee; Editing by Muralikumar Anantharaman)