13.03.23 - 17.03.22
Results of the previous week
| VIX +7.73% | NQ +5.20% | XAUUSD +4.97% |
BRN -11.83% | PA -4.39% | SOYBEAN -1.75% |
The beginning of last week was worrisome for the stock markets. The collapse of Silicon Valley Bank sent shivers not only through both the US and European banking sectors. However, a $30 billion rescue package for another bank in trouble, First Republic Bank, has eased market fears of an imminent banking collapse. As a result, by the end of the week, stock indices had risen on expectations that the problems in the banking sector would force the Fed to reconsider its monetary policy position.
The forex market saw mixed movements. The euro and Swiss franc collapsed against the dollar amid reports of problems at Credit Suisse, Switzerland's second-largest bank. Later, however, they managed to recover partially. Gold (XAUUSD), on the other hand, exercised its right as a defensive asset and rose during the week, climbing to the level of 1930.
The banking sector's problems have also affected oil prices in a way. Brent crude oil dropped to $71.66 per barrel, its lowest point since December 2021. Problems in the banking sector have intensified fears of the start of a recession, but by the end of the week, the situation had stabilised. The rebound to $75 a barrel was partly driven by hopes of increased demand from China, which has removed its COVID restrictions and is ramping up business activity.
Key events of the current week
Germany. ZEW Indicator of Economic Sentiment | DATE 21.03 | GMT | FORECAST | PREV. | IMPORTANCE |
The economic sentiment index finally consolidated in positive territory after 10 months of signalling negative economic expectations from businesses. Part of the positive change is because the country is coming out of the heating season with significant gas reserves, which is an optimistic factor in the current environment of rather high energy costs. Additionally, the business has gradually adapted to the new way of doing things. That said, the latest events in the banking sector could negatively affect the indicator, which partially underlies expectations for a slight drop in economic sentiment. In this context, EUR/USD could return to the recent support level at 1.0530. | |||||
The UK. Inflation rate | DATE 22.03 | GMT | FORECAST | PREV. | IMPORTANCE |
Inflation in the UK is extremely high despite the Bank of England performing 10 interest rate hikes so far. With an insufficiently stable economy, such decisions negatively affect the GDP growth rate and a host of other indicators. Despite that, the British regulator continues to take measures aimed at combatting excessively high price pressure, which is nearly 5 times higher than the target rate. This month data on the inflation rate will be released a week before the Bank of England holds its meeting. If the report reflects less of a slowdown in inflation than is forecast, it could increase expectations of a faster interest rate hike.In the short term, that could buoy the pound sterling. In such a scenario, GBP/USD could return to 1.2290. | |||||
US Federal Reserve rates decision | DATE 22.03 | GMT | FORECAST | PREV. | IMPORTANCE |
So far, the Fed's actions haven't had a significant negative impact on the country's economy. In fact, in the past nine months, inflation has dropped from 9.1% to 6% in annualised terms. Nevertheless, the current value is three times higher than the Fed's target level. The fact that the Federal Reserve will increase its key interest rate at its March meeting is already baked into the prices of many financial instruments. As such, the rhetoric coming from Fed officials in their post-rate-decision press conferences will garner more interest. Previously, the Fed chairman had made it clear that the regulator will tighten its monetary policy as much as needed. Despite the shake-ups hitting the banking sector and the fact that the regulator had to take measures to smooth over the situation may lead to a change in the rhetoric to a softer tone. In such a scenario, we could expect US indices to recover going forward.The Nasdaq (NQ), for example, could continue moving toward 13,143. | |||||
