The Lull in the Markets and Alibaba`s Empire Breakup | Daily Market Analysis

Key events:        

• USA – Pending Home Sales (MoM) (Feb)
• USA – Crude Oil Inventories

On Tuesday, March 28, the world stock indices were trading without a single trend. In Japan and Hong Kong trading ended on the rise, while Chinese indices closed in a slight minus. European indices were adding within 0.5% at the start of trading. The futures on the S&P 500 shows near-zero dynamics.

The volatility in the market keeps going down, the S&P 500 Volatility Expectation Index VIX (also known as the "fear index") went down to 19 points, its lowest value since March 9. Let us remind you that that was also when the first news related to SVB Financial started to appear:

The two key "culprits" of the recent turmoil in the EU financial markets, Deutsche Bank and UBS, are seen as less so, with shares of both banks having risen over the last few days, indicating investors' optimism about the companies' financial situation and the implications of the Credit Suisse takeover.

Against this backdrop, EUR/USD as the divergence of ECB and Fed policies comes to the fore along with a reassessment of the risks of a full-blown banking crisis and liquidity shortages in the interbank market. ECB officials' rhetoric is saturated with comments that risks to inflation have shifted upward and more decisive action is needed. Joining the team of officials with that stance was Muller, head of the Estonian Central Bank. He said that the drivers of inflation are now very active and worrisome and that there is room to raise rates. You don't often see such unequivocal comments from officials at major central banks and it certainly shifts the risks of ECB tightening policy in favor of more aggressive and longer-term action. The statements of Fed officials look more cautious against this background.

The ECB's leadership in the "tightening race" allows us to expect a continued EUR/USD rally in the near future within the upward channel. The minimum target is the March high at 1.091 and then, after the rebound, the retest to the area of 1.10, where at the beginning of February there was strong resistance to the sharp improvement of the macroeconomic background in the USA, can be expected:

Risks to the Core PCE for March, the Fed's key measure of inflation, have shifted downward, risky assets are accounting for this with additional gains, the dollar with new local lows. A weak Core PCE will make it much easier for EUR/USD buyers to move up.

The Conference Board Consumer Confidence Index for March beat expectations at 104.2 points (forecast 101 points). The monthly change in US real estate prices was 0.2% and the Case-Shiller price index was up 2.5% year-over-year. Overall, the data suggest a further rise in optimism (albeit modest) in the US stock market in the short term.

Among other things, investors yesterday were surprised by the decision of Alibaba to split into several separate companies. China's Alibaba Group plans to split its business into six parts, each of which will prepare for an initial public offering "when the time is right.

This is the biggest reorganization of Alibaba's business since its inception more than 20 years ago.

The six business groups Alibaba plans to split into will include Cloud Intelligence Group, Taobao Tmall Commerce Group, Local Services Group, Cainiao Smart Logistics Group, Global Digital Commerce Group, and Digital Media and Entertainment Group. Each division will have its own CEO and board of directors. Daniel Zhang will remain chairman and CEO of Alibaba Group, which will retain a holding model of management. In addition, Zhang will lead the Cloud Intelligence Group. Analysts believe that this reorganization will really add an element of flexibility and adaptability to a company that is now so heavyweight. Following the announcement, Alibaba shares rose more than 14%.