Concerns about the state of the banking sector and the looming specter of a global recession have caused global equity markets to fall sharply. The Fed, BoE and SNB have decided to hike interest rates, yet the market is now pricing in the imminent end of the monetary tightening cycle. Given the tremendous volatility and potential market rebalancing, it is imperative to keep a close eye on current capital flows into major markets. Watch out for the TNOTE, DAX and S&P 500 in the next trading week!
TNOTE
The FOMC interest rate decision and Jerome Powell’s conference were the major events of the past week. The FOMC raised interest rates by 25 basis points and Powell assured that the situation in the banking sector was under control. However, the market is concerned that the problems could spread and spill over into other markets, causing a domino effect. The market is now looking at a nearly 75% chance of interest rates remaining unchanged at the next FOMC meeting, which coupled with the macro data pointing to an imminent slowdown in the economy, is fueling much interest in the bond market. Will the US TNOTE extend last week’s gains?
DAX / DE30
The German stock market has been in the focus of investors for the past week due to uncertainty surrounding Deutsche Bank, one of Europe’s major banks. CDS (Credit Default Swaps) rose to levels not seen in years and lack of confidence in the institution led to a withdrawal from Germany’s safest corporate bonds. The German stock market will also react to the CPI inflation figure to be released on Thursday, March 30th.
S&P 500 / US500
The main stock market benchmark is likely to show increased volatility this week. On the one hand, the Fed’s balance sheet and liquidity injections into the banking sector should support demand in the short term. Also, keep in mind that the Fed is nearing the end of its rate hike cycle. On the other hand, the market fears that the problems could spread, which combined with the specter of a looming recession does not exactly encourage investing in risky assets. In this context, the key macro reading this week will be Friday’s PCE inflation report.
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