Five in focus: everything is everywhere and at the same time

March 17 (Reuters) – A US Federal Reserve meeting comes amid deep scars left in financial markets as a reminder of a banking crisis that could still be followed by more upheavals.

It is likely that the situation around Credit Suisse will be in the spotlight at the meeting of the Swiss Central Bank, and the Bank of England may take a break in the fight against inflation.

Below is an overview of the most important events for the markets in the coming week:

1/ BETWEEN THE HAMMER AND ANvil

During the two-day meeting, which ends on Wednesday, the Fed will have to chart a difficult course, weaving between the need to fight inflation and solve the crisis in the banking system.

Just a week ago, investors were bracing for the return of a super-massive 50 basis point rate hike after Fed Chairman Jerome Powell said the regulator may have to raise interest rates higher than expected if data showed the US powerhouse economy still floundered. slowed down.

Sentiment changed markedly after the bankruptcy of Silicon Valley Bank (SVB), which sparked fears that the crisis could spread to the entire banking sector. Traders are now pricing in either a more modest 25 bp rate hike or none at all.

US inflation data in February, as expected, brought some relief, although annual price growth of 6% is still above the target of 2%.

2/ IN SWITZERLAND THE MOUNTAINS ARE VERY HIGH

Before the dust settled from the collapse of SVB, falls in stocks and bonds of the ill-fated Credit Suisse added to fears of a global banking crisis, shaking markets. The Swiss National Bank quickly stepped in to reassure investors, but turbulent markets are already fearful of what lies ahead.

The Swiss regulator’s temporary measures may have worked for now, but it’s about finding a long-term solution. Some speculated that Credit Suisse might merge with another UBS to restore Switzerland’s reputation as a safe haven. The whole world will follow the further actions of the Swiss central bank to avoid a repetition of this situation.

The issue of Credit Suisse will also be one of the priorities of the Swiss National Bank meeting on Thursday. The regulator is expected to raise rates by 25 or even 50 bp. fight inflation.

3 / WHAT ARRIVED?

The Bank of England may be close to ending its 17-month interest rate hike campaign to curb inflation. Traders estimate a 60% chance that the regulator will tighten lending conditions by a quarter of a percentage point to 4.50% and a 40% chance that the UK Central Bank will not change interest rates at all on March 23.

Inflation is still in double digits, with signs of some easing of price pressures. In the face of impending warming, natural gas prices, which have fallen by 70% in the last three months, are not a serious cause for concern. In addition, labor market pressures, including wage inflation, also show signs of easing.

The economy is fragile, the cost of borrowing is high, and workers are at risk of falling real wages. Money markets show that in any case investors do not expect the Bank of England to introduce a full arsenal of funds. The only question is whether the UK central bank has done enough to put the inflation genie back in the bottle.

4/ A WORD TO MR. KAZUO

The turmoil in the banks caused the yields on Japanese government bonds to drop. In addition, attention has focused on when the Bank of Japan will be able to ease its grip on long-term government debt yields even further. In such conditions, supporters of the pigeon camp have a chance to defend the ultra-soft PrEP.

Thursday’s Japanese consumer price data may change that picture. Core inflation is at its highest in four decades, twice the central bank’s target of 2%. Wage projections have also improved, something officials have long pointed to as the missing piece of the inflation puzzle.

Japan’s biggest companies and unions agreed on Friday to the first pay increase in more than 30 years in 30 years. The question remains whether smaller companies, employing up to 70% of the country’s population, can follow suit.

5/ EVERYTHING, EVERYWHERE, AT ONCE

For those who trade, invest and write about the financial markets, the last few days are like Everything Everywhere, the movie that just won an Oscar.

Within days, the SVB collapsed, throwing regional banks into turmoil, government bond yields plummeted as investors exodus to safe-haven assets, and the shares of Credit Suisse, a systemically important European bank, plummeted.

The same could happen in markets terrified by the worst turmoil since the 2008 financial crisis. Investors are wondering what else could happen as a result of a significant rate hike.

The answers are also crucial. A $30 billion bailout from the First Republic Bank eased the panic, and the central banks (Federal Reserve and Swiss Central Bank) helped calm the situation. However, if turbulence returns, regulators may have to intervene again.

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(Ray V in Singapore, Lewis Krauskopf in New York and Dara Ranasinghe, Amanda Cooper and Karin Stroecker in London starring Pasit Kongkunakornkul, Vineta Sachdev, Sumanta Sen, Krip Jayaram and Vincent Flusser)