GEMFOREX - weekly analysis

As we enter the third week of March, here are 5 things to look out for this week:

1.Contagion risk

In the wake of Fridays dramatic collapse of Silicon Valley Bank (NASDAQ: SIVB), investors are growing anxious that the Fed's campaign to fight inflation has exposed vulnerabilities in the financial system that could grow if it keeps raising interest rates.

SVB, which focuses on tech startups, saw the value of bonds where it had parked its money fall due to higher interest rates. A plan to boost the value of its holdings backfired, prompting a run on the bank before regulators stepped in on Friday, shuttering the bank and putting it in receivership.

The rapid collapse sent jitters through global markets and walloped banking stocks amid fears over contagion in the financial sector and beyond.

2.U.S. inflation data

While Friday‘s mixed U.S. jobs report eased some worries about the prospect of a 50-basis point rate hike at the next Fed’s meeting, a persistent inflation figure on Tuesday could reignite fears among investors that are already treading with caution following the failure of SVB.

Economists are expecting monthly inflation to rise by 0.4% February after a 0.5% increase the prior month for an annual gain of 6.0%.

Last week, Fed Chair Jerome Powell said the U.S. central bank is likely to raise rates higher than previously expected if upcoming data shows that the economy remains hot after almost a year of interventions. He then added that no decision has been made yet about the upcoming March meeting.

Other economic data to watch in the coming week includes February figures on retail sales, producer price inflation, housing starts and industrial production.

3.ECB rate hike

The ECB looks determined to hike interest rates by another 50 basis points at its meeting on Thursday, after already raising rates by 3 percentage points since July, in an attempt to control inflation.

Data that shows that underlying inflation in the Eurozone increased last month added to concerns that price pressures are proving persistent.

Markets are pricing in another 50-basis point hike at the ECBs May 4 meeting and the minutes of the ECB's February meeting have not challenged those expectations.

“Core inflation and other measures of underlying inflation were likely to be stickier, with only limited evidence of a stabilization so far,” the ECB minutes said. “Further increases were required for the Governing Councils policy rates to enter the restrictive territory.”

ECB President Christine Lagarde will likely be put on the spot on how high rates will ultimately go at Thursdays post-policy meeting press conference.

4.U.K. budget

Britain's Chancellor Jeremy Hunt delivers his Spring Budget on Wednesday. After the market turmoil in September when Hunt's predecessor Kwasi Kwarteng and former Prime Minister Liz Truss unveiled lavish tax cuts, forecasters expect Hunt to prioritize keeping public finances steady.

With that in mind, the main focus for markets will be on the growth and borrowing forecasts to be released alongside the budget.

The Office for Budget Responsibility has predicted 1.3% GDP growth for 2024. The Bank of England forecasts a slight contraction. An OBR downgrade might affect the sterling, but the pound is moving mainly on interest rate differentials, with U.S. rates expected to rise further than in the U.K.

U.K. government borrowing is expected to fall, potentially supporting gilts, but an expected extension to a scheme to support household energy costs may be viewed as inflationary.

5.US news releases

Other economic data to watch in the coming week includes:

February figures on retail sales: Measures the change in the total value of sales at the retail level, considered to be an important indicator of consumer spending.

Initial Jobless claims:  The number of people who filed for unemployment for the first time.

Crude oil inventories: A measurement of the weekly change in the number of barrels of commercial crude oil held by US firms.

Trade Different With GEMFOREX