Morning message: Ready or not! Here comes US inflation data

A look at the day ahead in European and global markets from Ankur Banerjee

Investors are struggling to find their appetite for risk this week, with markets jittery in the wake of Silicon Valley Bank’s stunning collapse and measures by US authorities to contain the risk of contagion.

And yet global banking stocks have been brutally hit, with Japanese banks sinking to their lowest in nearly three months on Tuesday. The dollar remains near a one-month low, while oil prices fell more than $1 and the MSCI ex-Japan index languished at a more than two-month low. And while the two-year U.S. Treasury yield rose 16 basis points to 4.109% on Tuesday, it remained well off last week’s high of 5.085%.

All of this means the market is primed to believe the Fed might just keep clapping and not hike next week, with peak interest rates not far off. Traders are even pricing in rate cuts by the end of the year, a far cry from expectations last week of rates remaining above 5% through 2023.

The tentativeness may not carry through to Europe as futures indicate stocks may be in a higher opening time. Whether they sustain any gains remains to be seen. Investors will be keen to see if the worst is over for European banking stocks, with eyes on the STOXX banking index, which posted its biggest one-day percentage drop in a year on Monday.

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The spotlight will be firmly on U.S. inflation data for February, due later in the day, where consumer prices are seen to have risen at a solid pace, but economists are divided on whether the data will be enough to pressure the Fed Reserve to raise interest rates again in next week.

The benchmark yield on US Treasuries, which is sensitive to market fluctuations, shows a historic decline
Reuters graphics

Key developments that could impact markets on Tuesday:

Economic events: CPI data from the Netherlands, Finland, Spain and the United States

Reporting by Ankur Banerjee; Editing by Muralikumar Anantharaman

Our standards: Thomson Reuters Trust Principles.

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