Asian Markets Rise as Bank Fears Ease

Most Asian markets rose on Tuesday morning as the acquisition of large parts of the failed Silicon Valley Bank (SVB) by the First Citizens BancShares eased fears regarding the US banking sector. Deutsche Bank’s shares got a boost on Monday on the back of investors’ optimism.

In the UK, the Bank of England’s governor Andrew Bailey is expected to testify regarding the SVB UK developments before the Treasury Committee. Bailey repeated on Monday that the UK’s banking sector is resilient and in a good position to support the country’s economy.

Commenting on the eurozone’s economy, economists at S&P Global Ratings noted that “sticky inflation will force the ECB to raise rates for longer than we previously expected, probably until the deposit facility rate reaches 3.50% by the summer, unless the market turmoil undermines the current outlook for growth and inflation.” They forecast headline inflation to remain above the ECB’s 2% target until the first quarter of 2025.

Australian CPI inflation report on Wednesday

On Wednesday morning, the Australian Bureau of Statistics (ABS) is expected to publish February’s CPI inflation data. Economists forecast headline inflation to come in at 7.1% on an annualised basis, lower than the 7.4% figure recorded in January. 

ING’s analysts said in a report that if inflation dropped below 7% “it will support the RBA’s recent hints that rates are close to a peak, with one more 25 bps hike looking like the most likely outcome now, taking the cash rate target to 3.85%.”

IMF: Financial stability risks have increased

The International Monetary Fund’s (IMF) head Kristalina Georgieva suggested that risks to global financial stability have surged although some governments and central banks have tried to calm markets down. Georgieva repeated that this year is expected to be challenging as the clash in Ukraine, monetary tightening policies and the aftermath of the pandemic weigh in on global economic growth.

In her speech before the China Development Forum, she noted that hope for the global economy has been boosted by the forecast Chinese economic rebound as the IMF expects a 5.2% growth in 2023.

Fed’s Kashkari: Banking turmoil could bring the U.S. closer to a recession

Neel Kashkari, the Minneapolis Fed governor, told CBS reporters that turmoil in the banking sector could bring the US closer to a recession. “What’s unclear for us is how much of these banking stresses are leading to a widespread credit crunch. And then that credit crunch, just as you said, would then slow down the economy,” he noted.

Kashkari reiterated that the US banking system is resilient and described the reduction of deposit movements from small to larger banks as a positive development. Asked about new interest rate hikes, he said that it would be too early to make any forecasts, adding that banking sector stress should be taken into consideration.

ECB’s de Cos: Policy shifts will depend on new data and core inflation

Pablo Hernandez de Cos, the governor of the Bank of Spain and member of the ECB’s governing board, said that tensions in financial markets affect the outlook of economic activity and inflation.

De Cos noted that “the disinflation process could be accelerated further if the high tensions in financial markets were to be prolonged. Future monetary policy decisions will depend on how various sources of risks, including those recently experienced in financial markets, crystallize. Monetary policy decisions will also take into account intensity of monetary policy transmission.”

BoE’s governor: If prices continue to rise, more rate hikes on the way

Speaking to BBC journalists on Sunday, the BoE’s governor Andrew Bailey warned that the central bank could raise its interest rates if prices continue to increase. Bailey urged businessmen to try to control price hikes saying: “If all prices try to beat inflation, we will get higher inflation. I would say to people who are setting prices - please understand, if we get inflation embedded, interest rates will have to go up further and higher inflation really benefits nobody.”

The BoE’s governor added that inflation would likely fall sharply by the end of the year. It should be noted that the BoE’s inflation target is 2% while in February the Uk’s headline inflation came in at 10.4%, very close to a 40-year high.

KPMG: UK’s economic growth likely negative in 2023

A survey published by KPMG UK on Monday said that although a recession would likely be avoided, the UK’s growth is expected to be negative in 2023. KPMG’s analysts seem to agree with the BoE’s governor Andrew Bailey that headline inflation could drop sharply this year. “Looking ahead, as the economy cools and inflation returns back to target, this may provide the Bank of England with an opportunity for a series of gradual rate cuts next year,” the report said.

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