Investors seem to want to put the March bank shock on the back burner, but persistently severe inflation makes it difficult to clear the horizon.
With the last day of the month and first quarter, and the Easter holidays approaching in parts of the world, many markets will be able to see some relief from bank disruptions as the storm damage to the economy as a whole is assessed. increase. But for most major equity and fixed income investments beyond the banking sector itself, the quarter remained fairly positive overall.
Fed officials appeared to be back in ‘wait-and-see’ mode on further interest rate hikes as the Federal Reserve’s emergency lending to banks stabilized at high levels in the week ending Wednesday, with the final 4 at the current meeting. We plan to consider raising interest rates by 1 percentage point.
All seem to agree that the hit to lending from the regional bank turmoil may now be part of the Fed’s role, but inflation remains a concern.
“Inflation is still too high, and recent data support my view that more needs to be done,” said Boston Fed President Susan Collins.
Somewhat outdated given the events of the month, Friday will see a February update to the Fed’s favorite personal consumption expenditure (PCE) inflation measure. .
Influential figures from the Fed’s Board of Governors and Policymaking Committee will also be on the speech trail later in the day. Futures markets are still roughly divided on the likelihood of the Fed raising rates again in May, but there was another quarter-point move on Friday.
Outside the US, the picture of slowly receding but sticky inflation was also evident.
Eurozone inflation surprised by a better-than-expected 1.6 percentage point drop in March, falling below 7% for the first time in a year. However, core inflation, which excludes energy and raw food, rose as expected, reaching a block high of 7.5%.
But, like so many other things in today’s macroeconomy, the data landscape remains hazy around the world.
Germany said import price inflation fell to 2.8% in February, the lowest in two years. Tokyo’s core inflation rate in March slowed to 3.2% for the second month in a row, but was higher than forecast and still above the Bank of Japan’s target.
UK house prices fell at an annualized rate of 3.1% this month. This is the fastest decline since the real estate and banking crash 14 years ago.
And the latest Chinese business survey casts doubt on the speed of China’s manufacturing recovery.
Broadly speaking, financial markets were stable on Friday. Two-year Treasury yields fell after briefly hitting a one-week high of 4.168%, pushing Treasury volatility to its lowest level since March 13.
The dollar ended a relatively quiet quarter on the front leg and moved higher on Friday.
(By Mike Dolan, Reuters columnist)
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