Market Wrap: 22 March 2023

Market Wrap: 22 March 2023

Stocks Waver as Traders Await the Fed; Pound Rises: 

  • UK inflation rose more than economists forecast in February
  • Traders expect quarter-point interest rate hike from the Fed

European stocks fluctuated in a narrow range and US equity futures edged lower as investors prepared for the Federal Reserve’s much-anticipated interest-rate decision later Wednesday. The pound strengthened after a surprise increase in UK inflation.

The Stoxx Europe 600 Index was slightly lower, with rates-sensitive real estate stocks leading declines. Contracts for the S&P 500 and the tech-heavy Nasdaq 100 both retreated by at least 0.2%. A gauge of Asian equities advanced more than 1%.

All eyes will be on the Fed later as Chair Jerome Powell tries to balance his fight against inflation against a sudden banking crisis. The complexities confronting global central banks were underscored by data from the UK on Wednesday, showing inflation unexpectedly accelerated in February, surpassing all economists’ forecasts on the eve of a rates decision from the Bank of England.

The pound extended gains against the dollar as traders firmed up bets on a quarter-point hike by the BOE on Thursday and UK bonds fell. A Bloomberg index of dollar strength was little changed. Treasury yields fell slightly after a surge on Tuesday that added 19 basis points to the two-year maturity and 12 basis points to the 10-year benchmark. 

Investors were again focused on UBS Group AG after the bank said Wednesday it wanted to buy back some of its euro-denominated senior unsecured bail-in notes. UBS shares rose for a third day following its rescue of Credit Suisse Group AG.

Traders placed greater odds that the Fed will raise interest rates 25 basis points after market pricing was split between a hike and a pause earlier in the week. Officials at the central bank were set to issue updated rate projections for the first time since December, offering guidance on whether they still expect any additional increases this year.

“The failures of banks that we’ve seen so far are idiosyncratic,” Yuting Shao, macro strategist for State Street Global Markets, said in an interview with Bloomberg Radio. She expects the Fed to increase interest rates by 25 basis points on Wednesday. “Once we look beyond the current volatility, restrictive policy staying for a bit longer is still warranted.”

Every stock in a measure of US financial heavyweights climbed Tuesday. Shares in First Republic Bank fell about 9% in after-hours trading after the stock surged almost 30% in its best day ever. The gain came amid optimism over a new plan under discussion to aid the regional lender. Further intervention to shore up the bank may include US government backing, people with knowledge of the situation said.

Still, many see more problems ahead. Michael Wilson, Morgan Stanley’s chief US equity strategist, said the risk of a credit crunch is increasing materially. Bank of America’s latest global survey that polled fund managers between March 10-16 showed a systemic credit event has replaced stubborn inflation as the key risk to markets. 

West Texas Intermediate slid, trimming some of its gains from rallies on Monday and Tuesday. The energy sector led gains in Australian shares Wednesday, echoing the sector’s lead in the S&P 500 on Tuesday.

Key events this week:

  • US Treasury Secretary Janet Yellen to appear at Senate subcommittee hearing, Wednesday
  • FOMC rate decision, news conference from Chair Jerome Powell, Wednesday
  • EIA crude oil inventory report, Wednesday
  • Eurozone consumer confidence, Thursday
  • BOE interest rate decision, Thursday
  • Swiss National Bank rate decision and press conference, Thursday
  • US new home sales, initial jobless claims, Thursday
  • US Treasury Secretary Janet Yellen testifies to a House Appropriations subcommittee, Thursday
  • Eurozone S&P Global Eurozone Manufacturing PMI, S&P Global Eurozone Services PMI, Friday
  • US durable goods, Friday



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