After the market upheaval and banking crisis engulfing both sides of the Atlantic, the obvious calendar focus next week will be the FOMC meeting. It’s another tough call for central bank decision-makers as solid macro-economic data like hot inflation and decent jobs growth calls for more rate hikes. But the fallout from the collapse of Silicon Valley Bank and concerns around Credit Suisse mean uncertainty is very high.

According to money markets, there is currently a roughly 75/25% chance that the Fed hikes by 25bps compared to no change at all. The recent volatility has seen rate cuts get repriced in for later this year. If the FOMC stand pat, that risks signalling that policymakers are done, and the next move is definitely lower rates. Updated economic projections by the Fed should still continue to show higher rates by the end of the year.

The Bank of England meeting and policy decision on Thursday is also on a knife edge. This means the voting will be split with the doves’ voices getting louder due to systemic risks still high. But recent data, like softening wage growth, has also reinforced the idea that the MPC was very close to being done with its tightening cycle. On the flip side, the latest UK inflation data is released the day before the meeting which is likely to show prices still way above the bank’s 2% target. Again, much may depend on the recent drama in financial markets, which could give the MPC a perfect opportunity to pause.  

The risk-off environment still seems likely to mean that oil will struggle with soft fundamentals and the demand outlook now severely impacted by the developments in the banking sector. Brent is now down over 10% so far this year and has traded at its lowest levels since December 2021. Making the sell-off worse has been major liquidation from long hedge fund positions. On the other side is gold which popped up to highs last seen in April 2022. A softer dollar and much lower yields could continue for a while yet, having already boosted bugs by over 5% this week.

Major risk events of the week

21 March 2023, Tuesday:

-German ZEW Survey: The January reading was the fifth straight monthly increase as the outlook for the eurozone’s biggest economy has brightened considerably since October. Survey data in February points to a pick-up in activity and economic sentiment. This should underpin support for the euro. 

22 March 2023, Wednesday:

-UK CPI: A headline reading of 9.9% in February is expected after the 10.1% prior print. That was the third consecutive month of falling prices after the index peaked in October at 11.1%. The core number is expected to ease as well from 5.8% in January. 

–FOMC Meeting: A tough decision for the Fed. Updated forecasts will be published which are expected to show rates ending the year higher than their current level. Data is supportive of more hikes but uncertainties around the banking sector are tightening financial conditions.

23 March 2023, Thursday:

-Bank of England Meeting Consensus expect the MPC to raise rates by 25bps to 4.25% with a 7-2 vote split, though a bigger splintering is possible. Analysts think this is likely to be the peak in rates with more neutral and symmetric policy guidance.

24 March 2023, Friday:

–Eurozone PMIs: Consensus sees the manufacturing PMI printing at 48.8 from 48.5 in February. The Services PMI is forecast to tick two-tenths lower to 52.5. Supply issues are fading which is helping manufacturing consolidate. Services are relatively buoyant though inflation remains a concern.

–US Durable Goods: Analysts estimate a 1.7% rise after the -4.5% print in January. That was affected by a large drop in Boeing aircraft orders. Core orders saw the biggest jump since March 2022 suggesting that business spending on equipment picked at the start of the first quarter.