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.