Marvin Barth, founder of Thematic Markets, says “the systemic losses we’re seeing are exactly related to [quantitative easing] and forward guidance.”
Des Lawrence, senior investment strategist at State Street Global Advisors Ireland, says that while there are fragilities in the banking system, it is “better regulated, better capitalized and a lot more prudent” than it was in 2008 or during the euro zone debt crisis.
The euro traded higher against the U.S. dollar after European Central Bank president Christine Lagarde said in a speech that inflation is “still high” and “uncertainty around its path ahead has increased.”
The euro was up 0.22% to $1.0791 at 10:27 a.m. CET.
“But the public can be certain about one thing: we will deliver price stability, and bringing inflation back to 2% over the medium term is non-negotiable,” Lagarde added.
The ECB last week hiked rates by 50 basis points.
Euro-dollar exchange rate.
British retailer Marks and Spencer Group topped the Stoxx 600 index on Wednesday morning. Goldman Sachs upgraded the stock from a “sell” to a “neutral” rating on Tuesday, according to MarketBeat.
British Land, a property company sensitive to interest rate rises, posted a 4.2% decline after U.K. inflation unexpectedly accelerated, boosting rate hike expectations.
Marks and Spencer Group share price.
The British pound was up 0.5% against the U.S. dollar to $1.2278 at 8:30 a.m. London time, extending early morning gains after a hotter-than-expected U.K. inflation print.
Sterling has held up relatively well during the recent banking sector turbulence.
British pound-U.S. dollar exchange rate.
Jane Foley, head of FX strategy at Rabobank, said the consumer price inflation number had lifted GBP further as markets reconsidered their rate hike expectations.
“It is not what the BoE will have wanted to see ahead of its policy meeting today and does complicate its forecast for a sharp move lower in UK price pressures this year,” Foley told CNBC by email.
“The market has been thinking that the Bank’s interest rate policy could be ‘one and done’. This view is now being questioned.”
Money market bets, after the inflation print, stand at a 25 basis point hike, according to Eikon data.
The euro was down 0.4% against sterling, at £0.8777.
Meanwhile U.K. government bond yields moved higher, with the 2-year yield up 18 basis points to 3.468% and the 10-year yield up 11 basis points to 3.479%.
The European Stoxx 600 index opened flat on Wednesday before nudging 0.15% higher.
Banks also moved from flat to slight gains after Tuesday’s rally, which boosted bank share prices across the region as fears of a prolonged crisis subsided.
The financial services sector was up 0.5% in early trade while retail stocks led gains, up 1.1%. Telecom stocks had the biggest fall, down 0.64%.
However the U.K.’s FTSE 100, Germany’s DAX and France’s CAC 40 were all in the red at 8:15 a.m. in London.
Stoxx 600 index.
U.K. annual inflation increased from 10.1% in January to 10.4% in February, official figures showed. Economists in a Refinitiv poll expected a 9.9% increase.
Core inflation, which excludes energy, food, alcohol and tobacco, rose from 5.8% to 6.6%; while monthly inflation was up from 0.7% to 1%.
The primary driver of year-on-year inflation was housing and household services, chiefly electricity and gas bills, the Office for National Statistics said.
The monthly change was fueled by restaurants and cafes, food, and clothing, though partly offset by declines in recreational and cultural goods and services, as well as motor fuels, the ONS added.
The details in the inflation print will be closely-watched by the Bank of England’s Monetary Policy Committee, which meets Thursday for its latest interest rate decision after its 50 basis point hike in February.
Markets are now pricing in a 61.6% chance of a 25 basis point hike, up from around 57% on Tuesday, Reuters reported.
— Jenni Reid
Treasury Secretary Janet Yellen said Tuesday that while authorities believe they’ve taken sufficient action to stem liquidity problems in the banking sector, the government is prepared to guarantee even more deposits if the banking crisis gets worse.
“The steps we took were not focused on aiding specific banks or classes of banks. Our intervention was necessary to protect the broader U.S. banking system,” she said in remarks prepared for a speech to the American Bankers Association. “And similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion.”
— Tanaya Macheel, Jeff Cox
China’s president, Xi Jinping, will wrap up his visit to Russia soon, and analysts argue Beijing will leverage its strong position to make gains from President Vladimir Putin.
“Putin is weak, coming into these negotiations from real vulnerability,” said Timothy Ash, emerging markets strategist at BlueBay Asset Management, adding, he wondered “what price Xi will extract for saving Putin … he has to get something out of it.”
Overall, China has an upper hand economically over Russia, said Alicja Bachulska, policy fellow at the European Council on Foreign Relations. “If China supports Russia in a more substantial way this will continue even more,” she added.
Read the full story here.
— Yeo Boon Ping, Holly Ellyatt
Tech investor Paul Meeks has been bearish on tech for some time, but is finally beginning to warm up to the sector.
“I’m creeping back into the sector after long advocating an underweight position in it,” he told CNBC on Friday. He joins a chorus of investors who have turned more bullish on the sector in recent weeks.
Pro subscribers can read more about Meeks’ top stock picks here.
— Zavier Ong
Morgan Stanley says it’s “time to turn bullish” on Asia and emerging markets’ growth stocks.
While markets may be pricing in a rate hike at the Federal Reserve’s March meeting, many also expect rate cuts later this year. Easing financial conditions should benefit growth stocks, the strategists said.
CNBC Pro subscribers can read more here.
— Jihye Lee, Christine Wang
As the Federal Reserve is looking to announce its latest monetary policy decision on Wednesday, Insight Investment believes that inflation will continue to remain high in 2023.
“The 2% inflation objective is unlikely to be realized in 2023 but there is some hope that we may see a more normal inflation environment by 2024,” Brendan Murphy, Head of Core Fixed Income, North America wrote in a Tuesday note.
“As the lagged effect of the Fed’s policy rate increases along with the more recent tightening of financial conditions associated with the banking sector concerns works their way through the economy, the effects are likely to be disinflationary. Those same conditions present many risks to the growth picture,” Murphy added.
Insight Investment expects the central bank will raise interest rates by 25 basis points on Wednesday, but added that “the recent market volatility could be an opportunity for them to pause at this meeting.”
“The argument for a pause is strong as another 25bp increase could be seen as contributing to market volatility and financial instability,” said Murphy.
“However, not delivering on 25bps might cause some to question the Fed’s resolve in bringing inflation lower which could create a whole new set of problems. Pausing may lead to an easing of financial conditions that work against their inflation goals.”
— Hakyung Kim
European markets are set to open in positive territory on Wednesday as investors look ahead to the next monetary policy decision by the U.S. Federal Reserve.
The U.K.’s FTSE 100 index is expected to open 8 points higher at 7,545, Germany’s DAX 45 points higher at 15,238, France’s CAC 18 points higher at 7,125 and Italy’s FTSE MIB up 92 points at 26,157, according to data from IG.
On the data front, the U.K. inflation rate for February will be released.
— Holly Ellyatt
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