Markets Rise As Bank Fears Keep Easing | Daily Market Analysis

Key events:

• Australia - Retail Sales (MoM) (Feb)
• UK - BoE Gov Bailey Speaks
• Eurozone - ECB President Lagarde Speaks
• USA - CB Consumer Confidence (Mar)

European markets started the week on a positive note after a sell-off at the end of last week, as the banking sector concerns of the past few days eased slightly. Most sectors saw a modest rebound, boosted by events in the U.S., where Citizens Bank agreed to buy most of Silicon Valley's loan portfolio and securities and take over all of its deposits from the Federal Deposit Insurance Corporation (FDIC), which estimated that liquidating the remainder of the failed bank would cost its deposit insurance fund $20 billion. The FDIC is forced to retain nearly half of SVB's assets but will receive up to $500 million in equity instruments from First Citizens as part of a loss and profit-sharing scheme for the asset recovery process.

Meanwhile, the S&P 500 finished higher for the third day in a row, but the Nasdaq struggled slightly as U.S. two-year yields climbed back above 4% yesterday. This rebound in yields on both sides of the Atlantic suggested a corrective measure to last week's sharp plunge, as markets attempted to reprice dire recession scenarios.

In early Asian trade on Tuesday, gold prices saw an increase, but they remained well below recent highs. This was due to gains in the stock market and hopes that the US banking crisis had been averted, which prompted investors to move away from safe haven assets. On Monday, the yellow metal saw a sharp decline as repeated reassurances of stability in the banking sector eased concerns over broader contagion from the collapse of several banks this month.

This week will be a much quieter week on the economic calendar, with Friday's main event being the core PCE consumer price index, the Fed's favorite measure of inflation. Inflation accelerated in January, raising fears about the prospect of a more hawkish Fed policy.

Today will be the March consumer confidence data, which is likely to show the impact of stress on the financial system.

Other reports include data on pending home sales, revised U.S. GDP, and initial jobless claims.

Several Fed officials are also scheduled to speak this week, including Fed Governor Philip Jefferson, Boston Fed Chair Susan Collins, Richmond Fed Chair Tom Barkin, and Governors Christopher Waller and Lisa Cook.

Also, inflation data will be released in the eurozone on Friday and will be closely watched, and while core inflation is expected to slow, core inflation, which excludes volatile elements including food and fuel prices, should accelerate.

Earlier this month, the European Central Bank raised interest rates by 50 basis points to 3%, but some policymakers are now calling for a more cautious move, as past rate hikes are already taking their toll and the economy is starting to respond.

Meanwhile, the banking crisis has raised fears that lending will slow down, which will have a negative impact on the economy.

China's PMI will be under scrutiny Friday as market watchers try to gauge the strength of the world's second-largest economy's recovery after pandemic-related restrictions were lifted.

Incoming BoJ governor Kazuo Ueda is expected to watch the Bank of Japan roll back its control of the yield curve and negative interest rates during his predecessor's decade of unprecedented stimulus.

Despite yesterday's quieter session, markets remain one negative headline away from another sharp tumble, and month and quarter-end flows may skew this week's price action. ECB policymakers started to temper their remarks with concerns about financial stability, while Bank of England Governor Andrew Bailey is expected to brief MPs on the Silicon Valley Bank situation with respect to its UK operations.