The week was marked by volatility in U.S. regional banks after California-based First Republic Bank failed and was taken over by regulators. The subsector of regional banks in the S&P 500 experienced significant volatility amid concerns about potential bank failures and the credit pressures that could arise if the economy slows and unemployment increases. Despite a rally on Friday, the S&P 500 Index ended the week lower, as a result of comments from Federal Reserve Chair Jerome Powell that implied a potential delay in the pivot towards rate cuts, which had been expected by the market.

Additionally, concerns regarding the U.S. debt ceiling may have contributed to the uneasiness, with Treasury Secretary Janet Yellen warning that the agency may not be able to meet its debt obligations as early as June 1. Within the S&P 500, the information technology sector performed well and closed higher, while energy shares pulled back in correlation with the price of crude oil. Brent crude oil closed the week lower at $75,27 bbl., a -6.21% price reduction.

The U.S. Federal Reserve’s Federal Open Market Committee (FOMC) implemented the widely anticipated 25 bps hike this week, aligning with market expectations. However, the FOMC also signalled a probable pause in June, which could potentially mark the end of the current rate hiking cycle. Chairman Powell emphasized that he does not foresee the banking stress to result in a recession, and he also mentioned the possibility of a soft landing for the economy.

In April, the U.S. economy added 253,000 jobs, surpassing expectations of a monthly gain of 185,000. However, downward revisions to the data for the prior two months subtracted 149,000 jobs. The unemployment rate dropped to 3.4%, reaching its lowest level since the 1960s. Following the release of this data, 10-year U.S. Treasury yields experienced a significant increase after having initially declined earlier in the week due to concerns surrounding the banking sector stress.

According to recent data, the UK housing market is showing signs of stabilisation, as mortgage approvals for home purchases increased for the second consecutive month in March. The number of approved mortgages rose sharply to 52,011, up from 44,126 in February, representing the largest number since October 2022. Despite this improvement, it is worth noting that mortgage loan approvals remain below their monthly average of around 70,000 prior to the economic turmoil caused by the mini-budget proposal under former Prime Minister Liz Truss in September 2022, which caused a spike in long-term interest rates and led to a withdrawal of funds from the market by lenders.

In the Eurozone, major stock indexes were mixed, as recession fears and banking tremors continued to weigh on sentiment. Germany’s DAX ticked slightly higher 0.24%, while France’s CAC 40 index weakened by 0.78%. The Euro STOXX 50 also ended the week slightly lower, down 0.43%.

The Eurozone inflation data released recently was in line with expectations, with core inflation declining to 5.6% year-on-year, while headline inflation increased to 7% year-on-year, slightly surpassing consensus estimates. As anticipated, the European Central Bank (ECB) decided to moderate the pace of interest rate hikes, implementing a 25-bps adjustment. The ECB noted that previous rate increases were now exerting a notable impact on financial conditions. President Lagarde emphasized that risks to the inflation outlook remain biased towards higher levels and that the ECB still has progress to make in addressing these concerns. Forecasts suggest an additional 25-bps increase in interest rates in both June and July, aiming to reach a terminal rate of 3.75%.

At the geopolitical front, tensions between the West and Russia remain elevated. Russia has accused Ukraine of utilizing drones in an attack on the Kremlin, allegedly targeting Russian President Vladimir Putin for assassination. Kyiv has denied these allegations. On Thursday, the Kremlin asserted that the United States was the mastermind behind these attacks.

Japan’s stock markets experienced a positive start during the first two days of the week but remained closed for the remainder of the period due to the Golden Week national holidays. The Nikkei 225 Index returned 1.0%, while the broader TOPIX Index gained 0.9%. On Monday, the markets rallied significantly due to a sell-off in the yen, which helped improve the outlook for Japan’s exporters. This followed the Bank of Japan’s decision, during its April 27-28 meeting, to maintain its ultra-easy monetary policy stance for the time being.

Chinese equities ended the week on a mixed note, following a shortened week due to the holidays, as unexpectedly weak manufacturing data affected market sentiment. China’s manufacturing sector displayed signs of weakness in April, with the official Purchasing Managers’ Index (PMI) falling from March’s reading of 51.9 to 49.2, indicating a return to contraction for the first time since December 2022. Despite this, the five-day holiday saw a strong rebound in domestic tourism, with around 274 million trips taken from Saturday through Wednesday, which is an increase of approximately 71% compared to the prior year. Furthermore, spending activity surged by 129% over the holiday period compared to the same period last year, raising hopes that a sustainable recovery in the service sector could potentially offset the weakness in manufacturing and the fragile property market.

US stocks ended the week mixed, with the S&P 500 down (-0.80%), the Dow Jones Industrial Average down (-1.24%), and the tech heavy Nasdaq Composite rising slightly 0.07%. The Euro Stoxx 50 ended the weak lower (-0.43%) and FTSE 100, (-1.17%) also closed the week in the red. Asian equity markets fared better, all closing the week higher, Japan’s Nikkei 225 index gaining 1.40%, and Hong Kong’s Hang Seng index rose 0.41%. While China’s Shanghai Composite index posted a modest gain of 0.34% for the week.

U.S. corporate earnings announcements were in the spotlight this week, as attention focused on the season’s busiest week of quarterly earnings reports. Tech heavyweights, Microsoft, Alphabet, Amazon, and Meta reported better-than-expected results, beating analyst estimates for revenue and profit, whilst cyclical sectors generally struggled.

With roughly half of S&P 500 companies having reported quarterly results, earnings for the period are down 1.7%, while revenues are up 4% versus the same quarter a year ago. In summary, this highlights that there is an encouraging level of ongoing demand, but profits remain under pressure from higher expenses.

However, concerns are growing about an economic slowdown in the coming months, as regional manufacturing activity measures fell well below expectations, signalling production cutbacks in April. The latest U.S. GDP report showed that the economy is losing momentum, with Q1 GDP slowing to 1.1% compared to 2.6% in the prior quarter, and below consensus expectations. The future of the U.S. economy depends on the strength of the job market, with historically low unemployment rates and consistent wage gains supporting consumer spending despite stubborn inflation.

The U.S. banking industry is also facing renewed turmoil, with California’s First Republic Bank reporting over USD 100 billion in deposit outflows in Q1, causing the stock to plummet. The Federal Deposit Insurance Corporation’s plan to take the bank into receivership further worsened the situation.

In the Eurozone, preliminary data showed that the economy grew by 0.1% on a quarterly basis in Q1 of 2023, missing the expected 0.2% growth estimate. The bloc’s annual GDP rate grew by 1.3% in Q1, falling short of the 1.4% expectation.

The Bank of Japan (BoJ) kept its benchmark interest rate unchanged at -0.1%, despite the Tokyo consumer price index increasing by 3.5% on a year-on-year basis in April, compared to expectations for a 2.6% increase. Unemployment increased to 2.8% in March, compared to 2.6% in the previous month.

In a landmark move, China has set up a nationwide real estate registration system, which paves the way for the implementation of a long-awaited property tax. This move is a critical component of President Xi Jinping’s Common Prosperity goals. According to state media reports, the integrated registration system, which took a decade to develop, has more than 1.5 billion real estate records across the country. This system provides the authorities with insight into who owns what and has long been regarded as a prerequisite for implementing a home ownership levy.

According to the World Bank, there is a likelihood of a decline in global commodity prices in 2023, the largest drop since the pandemic began. The bank has revised its projection for its commodity-price index and now expects a 21% reduction this year, which is more than what was anticipated in October.

India surpassed China as the world’s most populous country in April, this according to the UN. At the same time, India’s population is set to grow for several decades while the number of people in China shrinks.

Global equity markets were mixed this week. In the U.S., the Dow Jones (+0.86%), S&P 500 (+0.87%) and Nasdaq (+1.28%) all ended the week higher. In contrast, the Euro Stoxx 50 (-1.12%) and FTSE 100 (-0.55%) were negative, whilst Asian indices were mixed, including the Nikkei 225 (+1.02%), Hang Seng (-0.47%) and Shanghai Composite Index (+0.67%).

Following a relatively uneventful week in terms of economic data and financial news, the leading U.S. equity indices recorded robust gains. Energy stocks were buoyed by the upsurge in oil prices, with Brent Crude oil rising by over 7% to reach the $79 per barrel mark. This week marked the end of the first quarter of 2023, during which the tech-heavy Nasdaq Composite surged by over 16%, while the broader S&P 500 index recorded a gain of approximately 7%. The narrowly focused large-cap Dow Jones Industrial Average also posted a modest increase for the quarter.

The U.S. core (excluding food and energy) personal consumption expenditure price index for February exceeded expectations, coming in at 4.6% compared to the consensus forecast of 4.7%. The market responded positively to this news. The core PCE index is considered the Federal Reserve’s preferred measure of inflation, and while this is a promising development, the figure still exceeds the Fed’s long-term inflation target of 2%. In addition, The Commerce Department released revised 4th quarter GDP estimates, which were slightly lower at 2.6% quarter-over-quarter.

In U.S. political news, former President Donald Trump has been indicted by a Manhattan grand jury on Thursday in a probe regarding hush money payments made to Stormy Daniels during his 2016 campaign. The indictment is a historic event in American law and politics, Trump becomes the first ex-US president to face criminal charges. This event is certain to divide an already polarised society and electorate.

In February, the inflation data for the U.K. saw an unexpected rise, primarily due to an increase in food and beverage prices, following four consecutive monthly decreases. This indicates that the cost-of-living crisis is far from over, with prices in stores reaching an all-time high. On the other hand, revised official data showed that the U.K. was able to steer clear of a recession last year, thanks to government subsidies on energy bills. In the fourth quarter, the GDP saw a sequential growth of 0.1%, contrary to initial estimates of no growth. Meanwhile, the U.K. housing market continues to be weak, with house prices falling at the fastest annual rate since the GFC, according to mortgage lender Nationwide. Furthermore, Bank of England (BoE) data indicated a sharp decline in net mortgage lending in February.

In the Eurozone, shares rallied, for the back of easing concerns about financial instability. Major stock indexes across the region witnessed strong gains, with France’s CAC 40 index increasing by 4.38%, Germany’s DAX adding 4.49%, Italy’s FTSE MIB surging by 4.72%, and the Swiss Market Index (SMI) also gaining strongly by 4.41%. Preliminary estimates indicate that Eurozone inflation slowed more than anticipated, with annual consumer price growth dropping to 6.9% in March from 8.5% in February, as energy costs declined. Additionally, the unemployment rate for February remained stable at 6.6%.

Russian President Vladimir Putin has once again issued a warning regarding the possibility of deploying tactical nuclear weapons to Belarus, with the intent of placing them in closer proximity to the frontlines of the ongoing conflict in Ukraine. Belarus, in turn, has expressed its willingness to permit the hosting of such weapons on its territory, citing the need to bolster its defence capabilities in response to what it perceives as security threats posed by Western nations. The Ministry of Foreign Affairs of Belarus has reiterated this stance. Furthermore, President Putin has signed a decree on Thursday calling for the conscription of an additional 147,000 personnel between the months of April and July.

Chinese equities saw an uptick, fuelled by robust economic data and supportive remarks from Beijing, which have bolstered confidence in the country’s growth prospects. The International Monetary Fund (IMF) has projected that China’s recovery will contribute to around one-third of global growth in 2023, given the increased risks to economic stability following the banking sector’s recent turmoil. The IMF further predicts that China’s economy will expand by 5.2% this year, whereas global growth will slow to below 3.0%. The country’s manufacturing sector demonstrated continued expansion in March, with the official Purchasing Managers’ Index (PMI) climbing to 57 from 56.4 in February.

In other developments, Chinese e-commerce behemoth Alibaba Group has announced its intentions to divide itself into six units that can independently raise capital or pursue initial public offerings. Many market analysts believe that this restructuring may appease regulators and could mark the end of China’s long-standing crackdown on private enterprises.

US stocks ended the week higher, with the S&P 500 gaining 3.48%, the Dow Jones Industrial Average up 3.22%, and the Nasdaq Composite rising 3.37%. The Euro Stoxx 50, 4.46% and FTSE 100, 3.06% also closed the week in the green.  The positive trend extended to Asian equity markets all closing the week higher, Japan’s Nikkei 225 index gaining 2.40%, and Hong Kong’s Hang Seng index rose 2.36%. While China’s Shanghai Composite index posted a modest gain of 0.22% for the week.

The most closely watched event of the week was the conclusion of the Federal Open Market Committee’s (FOMC) meeting on Wednesday. As expected, the FOMC raised interest rates by 0.25% to a range of 4.75% to 5.00%. Fed Chair, Jerome Powell signalled that the battle against inflation must go on, despite acknowledging tensions in the banking system, emphasizing his belief that the banking system remains resilient. In response to questions, Powell also added that Fed officials “don’t see rate cuts this year”.

Nevertheless, the Fed’s updated March “dot plot” (showing individual policymakers’ rate expectations), indicates a growing disparity in outlooks, suggesting that officials are expected to stop raising rates after one more hike in May. In Summary, the Fed appears closer to a pause in its rate-hiking cycle.

Economic data released this week, showed that momentum in the U.S. economy remains resilient, with weekly jobless claims remaining near 5-decade lows (coming in at 191,000 in the week ended 17 March). The S&P Global Composite Index (measuring both services and manufacturing activity), increased from 50.1 to 53.3 (above 50 implies an expansion), indicating the fastest pace of private sector growth since May 2021.

The big news out of Europe this week, was the announcement that Swiss Bank, UBS agreed to take over its long-time rival Credit Suisse as authorities stepped in to halt a dangerous decline in confidence in the global banking system, stemming financial market panic unleashed by the failure of two American banks earlier this month. UBS agreed to buy Credit Suisse in an emergency rescue deal, paying $3.25 billion for Credit Suisse, about 60% less than the bank was worth when markets closed last Friday. More recently, uncertainty has emerged around Deutsche Bank, whose share price fell, and its cost of insurance rose sharply late last week.

In other European news, consumer confidence unexpectedly dropped to a level of -19.20 in March, compared to market expectations for an improvement from February’s -19.10 reading. Economic sentiment deteriorated more than expected to a reading of 10.00 (expectations: 23.20) compared to February’s 29.70 reading.

On a positive note, Swiss watch exports rose 12.2% in February as orders from China grew for the first time in four months following the end of Covid-Zero policies.

In the UK, inflation unexpectedly accelerated for the first time in four months as food and drink prices increased at the fastest pace in 45 years. Headline inflation increased by 10.4% (year-on-year) in February after a 10.1% gain the month before. Economists had expected the reading to fall back into single digits.

Unsurprisingly, the Bank of England (BoE) increased its key interest rate by 25 basis point to 4.25%, in line with market expectations. The cost of higher interest rates continues to weigh on UK property prices, which fell at the fastest pace in 12 years in January (excluding the pandemic).

Japanese consumer prices rose by 3.3% (year-on-year) in February, less than the market’s expectation for a 4.1% increase (compared to a 4.3% increase in January).

Global equity markets were stronger this week. In the U.S., the Dow Jones (+1.18%), S&P 500 (+1.39%) and Nasdaq (+1.66%) all ended the week higher. Similarly, the Euro Stoxx 50 (+1.61%) and FTSE 100 (+0.95%) were positive. In Asia, the Nikkei 225 (+0.19%), Hang Seng (+1.95%) and Shanghai Composite Index (+0.46%) also ended the week higher.

China’s National Bureau of Statistics (NBS) reported that the manufacturing purchasing managers’ index (PMI) rose to 52.6 in February from 50.1 in January, above the 50-point mark that separates expansion and contraction in domestic activity. Furthermore, the NBS emphasized that the non-manufacturing sector’s purchasing managers’ index (PMI) reached 56.3 in February, up from 54.4 in January. After lifting Covid restrictions, China’s economy is showing signs of a more robust recovery, with manufacturing seeing its most substantial progress in over ten years, services activity rising and the housing market stabilizing.

In the U.S. market sentiment received a boost this week after Atlanta Fed President Raphael Bostic published his written essay on Wednesday, commenting that he believes the Federal Reserve (Fed)should increase its policy rate by 50 basis points, to a range of 5%-5.25%, and maintain it at that level until well into 2024. As of now, rates are within a range of 4.5%-4.75%. Elsewhere, Fed Governor Chris Waller expressed doubt about whether the Fed is making the necessary headway to curb economic growth and decrease inflation. Citing robust inflation rates, as well as strong retail sales and the January jobs report, Waller indicated that if this trend persists, the Federal Reserve may have to increase rates beyond initial expectations. Officials next meet March 21-22, and by then they will have seen fresh reports on employment and inflation.

In Europe, official data indicated that the annual rate of inflation decreased slightly from 8.6% in January to 8.5% in February, and this was primarily driven by declining energy costs. On the other hand, core inflation, which provides a more accurate representation of underlying pricing pressures by excluding volatile food and energy expenses, increased from 5.3% to 5.6%. All combined, these factors contribute to the view that the European Central Bank (ECB) may maintain its hawkish stance for an extended period. It was suggested by the ECB President Christine Lagarde that a probable half-point increase in interest rates would occur during the March 16 meeting. European government bond yields increased over the week due to concerns about the aggressive tightening of monetary policy by the ECB as a result of persistent inflation data.

Following their sharpest weekly decline in two months, U.S. stocks rose Friday ending the week strongly, regaining some of their recent losses. The tech-heavy Nasdaq gained +2.58% for the week, while the S&P 500 and the Dow Jones were also both strongly up on the week, with gains of 1.90% and 1.75%, respectively. PMI’s in both Europe and the UK picked up in February with the Eurozone PMI rising to 52 from 50.2 in January and the UK composite rising to 53.1 versus 48.5 in January. Both the Euro Stoxx 50 and FTSE 100 ended the week positively, gaining 2.78% and 0.87% respectively.

For the second consecutive week, Chinese equities rose in anticipation of the National People’s Congress (NPC) meeting, as promising economic data raised expectations for a recovery that could surpass previous projections. The Shanghai Composite climbed by 1.87%. After four consecutive weeks of losses, the benchmark Hang Seng Index rebounded, increasing by 2.79%. The Nikkei 225 also secured positive gains of 1.73% this week.