Following rate decisions by the Federal Reserve, European Central Bank and Bank of England last week, investors will turn their attention to the latest economic releases this week to assess the health of the global economy, in the wake of the undergoing global banking fallout.
Banking Crisis Contagion Risk
Earlier this month, U.S. lenders Silicon Valley and Signature Bank collapsed, followed by a takeover of embattled Credit Suisse by rival UBS, resulting in lack of confidence in the banking sector and sparked fears over a ripple effect to other major lenders.
U.S. authorities are mulling the expansion of an emergency lending facility that would provide banks more support to prop up their balance sheet, according to Bloomberg. Top U.S. regulators said on Friday that the overall financial system is still sound despite stress on some institutions.
Perhaps more attention will be directed to Europe after the fall in shares of top banks on Friday. Deutsche Bank stock plunged 8.5%, where the banks’ shares have wiped out more than a quarter of their value.
US Data, Fed Speakers
The U.S. will release important data, including a key measure of inflation, final GDP reading and consumer confidence, as investors weigh the possibilities of a recession amidst the undergoing banking turmoil.
The Core PCE Price Index, the Fed’s favorite inflation gauge, may have risen 0.4% in February, while settled at 4.7% from a year ago, more than double the Fed’s goal. As long as inflation remains elevated, the Fed would still be caught between a rock and a hard place, as policymakers aim to balance inflation-battling resolve and stress on the banking system.
Last week, the Fed raised its benchmark interest rate by 25 basis points to the highest since 2007, while highlighted that their bid to tamp down inflation is not expected to deepen the banking crisis.
Boston Fed President Susan Collins and Richmond Fed President Thomas Barkin speaks at event on Thursday. Treasury Secretary Janet Yellen also speaks on Thursday. New York Fed President John Williams will deliver a speech on Friday.
China Economic Activity Gauges
Market participants will be closely watching key measures for China’s economic activities in March. The purchasing managers’ index (PMI) for both manufacturing and services sectors will be used as a gauge for the strength of the recovery in the world’s second largest economy in the wake of the lifting of pandemic restrictions.
Manufacturing PMI is expected to ease expansion from its the strongest level since April 2012 of 52.6 to 51.9 in March, while the services measure may have cooled to 54.3 from 56.3 in February.
CBE Interest Rate Decision
Economists are highly anticipating the Central Bank of Egypt to go for a large interest rate hike ranging between 200 and 300 basis points to counter the high inflation and absorb liquidity from the market, which resulted from the expiry of some investment certificates offered by the CBE earlier.
Policymakers may increase the benchmark borrowing cost from 16.25% to 18.25%, and will probably lift the overnight lending rate from 17.25% to 19.25%. It is worth mentioning that the core inflation rate in Egypt climbed to an all-time high of 40.26% in February from a year ago, according to data from the Central Bank of Egypt.