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Investors Brace for U.S. Inflation Stats Amid Largest Bank Failure Since 2008 Crisis: Week Ahead Recap

Investors Brace for U.S. Inflation Stats Amid Largest Bank Failure Since 2008 Crisis: Week Ahead Recap

Investors will be paying close attention to U.S. inflation statistics in the upcoming week amid the repercussions from the largest bank failure since the 2008 financial crisis. This will be a crucial test for markets already under stress from concerns about the Federal Reserve’s effort to control inflation. The United Kingdom will present its most recent budget, the European Central Bank will likely announce another significant rate hike, and China will likely reveal a flurry of economic data. This information will help you get your week started.

Investors are concerned that the Fed’s campaign to battle inflation has uncovered banking system weaknesses that could worsen if it steps up its rate hikes in the wake of Friday’s stunning collapse of Silicon Valley Bank (NASDAQ:SIVB).

The value of the bonds where SVB, which focuses on tech companies, had placed its money, decreased as a result of increasing interest rates. The bank had a run when an attempt to increase the value of its holdings failed, and on Friday, regulators intervened to close the bank and place it in receivership.

Fears of financial sector and broader contagion spiked as the abrupt collapse sent tremors across global markets and destroyed banks equities.

“According to Michael James, managing director of stock trading at Wedbush Securities, the market is being affected by the worries coming from the financial sector. The failure of Silicon Valley Bank and the mess that is Silvergate (NYSE:SI) together are raising questions about the soundness of the market as a whole.”

While the mixed U.S. jobs report released on Friday lessened some concerns about the possibility of a rate increase of 50 basis points at the Fed’s upcoming meeting, a hotter-than-expected inflation reading released on Tuesday may rekindle concerns among investors who are already on edge due to the failure of SVB.

Following a 0.5% increase the previous month and a 0.4% increase in February, economists anticipate annual inflation to increase by 6.0%.

The U.S. central bank is likely to raise rates more than anticipated if upcoming data indicate that the economy is still strong after almost a year of tightening, according to Fed Chair Jerome Powell last week. However, Powell added that no decision has yet been made regarding the upcoming March meeting.

In the upcoming week, keep an eye on February’s retail sales, producer price inflation, housing starts, and industrial production statistics.

After increasing rates by 3 percentage points since July in an effort to control inflation, the ECB appears prepared to raise rates by an additional 50 basis points at its meeting on Thursday.

Concerns that pricing pressures are proving to be persistent increased when data revealed that underlying inflation in the Eurozone edged up last month.

The ECB’s meeting on May 4 is expected to result in another 50-basis point increase, and the minutes from its meeting in February did little to alter market expectations.

The ECB minutes stated that there was “little indication of a stabilisation to date,” suggesting that core inflation and other underlying inflation indicators would likely be stickier. The Governing Council’s policy rates needed to rise even further before they entered restrictive area.

At the press conference following the policy meeting on Thursday, ECB President Christine Lagarde will probably be questioned about how high rates will ultimately rise.

Following the market turbulence in September when Hunt’s predecessor Kwasi Kwarteng and former Prime Minister Liz Truss proposed opulent tax cuts, forecasters anticipate that Hunt would give maintaining stable public finances top priority when delivering his spring budget on Wednesday.

Given this, the markets’ primary attention will be on the growth and borrowing projections that will be made public along with the budget.

In 2024, the Office for Budget Responsibility expects the GDP to expand by 1.3%. A small decrease is what the Bank of England expects. Sterling could be impacted by an OBR downgrade, but the pound is primarily influenced by interest rate differences because U.S. rates are anticipated to climb faster than those in the U.K.

Although it is anticipated that U.K. government borrowing will decrease, which might boost gilts, the extension of a programme to help with family energy bills may be seen as inflationary.

On Wednesday, China will reveal its first annual figures on retail sales and industrial production, which will help market observers determine whether Beijing’s new 5% growth objective is indeed as meagre as many analysts believe.

The information was released following Xi Jinping’s historic election to a third term as president on Friday during the National People’s Congress.

Li Keqiang, who was widely believed to have been marginalised as Xi strengthened his hold on the economy, was replaced as premier by Li Qiang, who is best known for managing Shanghai’s draconian COVID-19 lockdowns.

Li will now have to oversee the recovery of the second-largest economy in the world. China’s growth rate of just 3% in 2022 was the lowest in decades.

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