Markets surge as bank fears ease

The takeover of Credit Suisse by UBS in Switzerland helped stock markets stage a relief rally. Moody’s Investors Services analysts wrote in a report that “despite the eventual franchise benefits, Moody’s also notes that the transaction poses significant financial, cultural and franchise-related integration challenges for UBSG.”

First Republic Bank shares slid again on Monday as Standard and Poor’s downgraded the credit rating of the California-based institution.

Gold prices pulled back (trading at $1,969 on Tuesday morning), losing Monday’s upside momentum that propelled them to year-to-date highs above $2,000.

Lagarde: Inflation to remain too high for too long

The European Central Bank’s (ECB) head Christine Lagarde told members of the European Parliament (EP) that, although the euro bloc’s headline inflation fell to 8.5% in February on the back of lower energy prices, it is expected to remain higher than the ECB’s 2% target for a long period of time.

Lagarde said that the ECB will be monitoring market developments closely and vowed to “stand ready to respond as necessary to preserve price stability and financial stability in the euro area.”

Statistics Canada CPI inflation report

On Tuesday afternoon, Statistics Canada will release its February CPI inflation report. Economists suggest that headline inflation is likely to fall to 5.4%, on an annualised basis, from January’s 5.9% reading. If headline inflation comes in at 5.4%, it will be the lowest inflation figure recorded in the last 14 months.

UK CPI inflation to tick lower

On Wednesday morning, the Office for National Statistics (ONS) will release data regarding the UK’s inflation. Economists suggest that headline inflation fell to 9.9%, on a year-to-year basis, in February while core inflation is expected to come in at 5.7%.

UK headline CPI inflation fell for the third month in a row to 10.1% in the year to January from 10.5% in December. The Bank of England's (BoE) inflation target is 2%. The Inflation Attitudes Survey published by the BoE on March 17th revealed that expectations for inflation over the coming year dropped to 3.9% from 4.8% in November while those for inflation in the following 12 months fell to 3.0% from 3.4%.

Goldman Sachs: Fed to pause rate hikes

Goldman Sachs (GS) analysts insist that the Fed’s governing board won’t raise interest rates in its upcoming meeting on Wednesday. In a note to investors, GS economists suggested that “we expect the FOMC to pause at its March meeting this week because of stress in the banking system. While policymakers have responded aggressively to shore up the financial system, markets appear to be less than fully convinced that efforts to support small and midsize banks will prove sufficient.”

GS still expects the Fed to increase rates by 0.25% in May, June and July.

Bundesbank: German economy likely to contract in Q1 2023

A monthly report by Germany’s central bank said that "German economic activity will probably fall again in the current quarter. However, the decline is likely to be less than in the final quarter of 2022.” Bundesbank’s economists noted that headline inflation is set to shrink in March but added that “the core rate is proving exceptionally persistent. It could even increase slightly towards the middle of the year.”

The country’s GDP fell by 0.4% on a quarterly basis in the fourth quarter of 2022. Two consecutive quarters of decline in economic activity would put Germany into a recession.

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