Market Updates

A batch of strong US economic data sent markets lower last week. Equities and bonds fell as markets anticipated the negative impact on economic activity of further interest rate increases.

The message from central bankers at last week’s European Central Bank (ECB) Forum was that the overall level of inflation is still uncomfortably high. ECB President Christine Lagarde said that while “significant progress” had been made, policymakers “cannot declare victory yet”.

The weekend saw the news of potential instability in Russia, with a brief mutiny of a paramilitary faction.

The decisions taken by central banks last week generally were in line with our expectations, as expressed in our Mid-Year Outlook.

Optimism seems to have crept back into markets late last week, with indications that a debt ceiling deal could be within reach in the US, which pushed equities and bond yields higher.

In the absence of major economic data releases this week, the market’s attention will stay on the US debt ceiling negotiations.

With the earnings season underway, the big takeaway so far has been from US banks. There were market fears that the US banking turmoil may resurface but financials have reported positive earnings growth bolstered by major US banks.

With the March banking crisis fears now seemingly behind us, together with weaker-than-expected US inflation and strong data out of China, risk assets performed well last week.

There was a reprieve rally in global markets last week on the back of receding fears over the banking sector and strong Chinese data for March.

The fast-moving financial markets saw the attention switch from fears of stickier-than-expected inflation to the banking troubles in the US and in Switzerland.

Risks to financial stability stemming from the turmoil of US regional banks, such as Silicon Valley Bank (SVB), are back at the forefront and are reshuffling the monetary policy outcomes for the Federal Reserve (Fed).

Markets are concerned the disinflation narrative might be losing steam following hot inflation prints in the US and Europe, which sent government bond yields higher across the board.