The Week Ahead 20th -24th March: is a new banking system crisis looming?

Welcome to Key to Markets preview of the Week Ahead

Currency Pair Performance

5-day performance as of March 16, 2023. 11:30 GMT.

Source: finviz.com

10 Big Stories Last Week

In case you missed it…

Credit Suisse tumbles 25% in a day. News that the largest investor, the Saudi National Bank, had said no to further capital injection raised fears about the bank’s future. A loan by SNB restored confidence, sending shares higher.

ECB raised interest rates by 50 bps. What comes next is less certain than a week ago. The bank rout raises questions over whether the ECB can hike rates further.

Meta cuts another 10,000 jobs. This is the second round of substantial job cuts as the social media platform focuses on cost-cutting and efficiency. The share price rose 7% after the announcement.

SVB collapses. The 16th largest bank in the US, whose clients were primarily tech start-ups, collapsed, requiring the Fed & the Treasury to step in to guarantee deposits.

US core inflation rises unexpectedly. Headline CPI cooled to 6% YoY as forecast, but core CPI rose 0.5% MoM, up from 0.4% in January.

Uber rises after a court ruling. The move would see more focus on the ride-hailing & food delivery businesses which are still growing, while the freight unit is struggling. The share price jumped 3% on the news.

Oil dropped below $70. Oil fell to a 15-month low as fears of a financial crisis, combined with an 18-month high in inventories, overshadowed optimism surrounding China’s reopening.

Bitcoin rose above 25k. Bitcoin, often considered an alternative to the traditional banking system, has rallied this week as some banks have struggled to maintain customers’ trust.

GE’s share price rose to the highest level since 2018. GE forecasts that the aviation business will grow by at least double digits over the coming years until 2025.

Baidu falls to an 8-week low. The share price fell after the country unveiled its Chinese language ChatGPT called Ernie bot before warning of its imperfections.

Chart of the Week

Source: All Star Charts

Oil prices tanked over 11% last week as fears of a financial crisis hurting the oil demand outlook overshadowed optimism surrounding China’s economic recovery.

The IEA and OPEC upwardly revised their demand outlooks, citing China’s recovery, but investors are fretting over a global economic slowdown and high inventory levels.

Oil fell below $70 this week to a fresh 15-month low. The chart shows that oil may struggle to break out higher below the 2018 highs.

5 Things to Watch This Week

1. Fed rate decision
The Federal Reserve will announce its monetary policy decision on Wednesday, 22nd March. Expectations regarding rate hikes have swung wildly in recent weeks. Just a week ago, the market was pricing in a 78% probability of a 50 bps hike and a 0% chance of no changes to the policy. Since then, the collapse of SVB and fears regarding the financial system’s health have resulted in the market pricing in a 70% probability of the Fed keeping rates on hold as cracks appear in the financial systems due to rapidly rising interest rates.

2. BoE rate decision
Until a week ago, the markets were expecting a 25 basis point rate hike from the BoE. However, given the uncertainty that has spread across the banking sector, doubts are growing over whether the central bank will go ahead with what was expected to be the final hike or whether policymakers are ready to pause, even with double-digit inflation. This is sitting at around a 50b/ 50 split right now. Expectations are growing from investment banks and the OBR that inflation will fall towards 2% by the end of the year.

3. Eurozone PMI data
PMI data showed that business activity in the eurozone returned to growth in February, easing fears of a recession in the region. Expectations are for the March PMI data to show that business activity grew faster again in March, with the composite PMI expected to rise to 52.2, up from 52 in February. Level 50 separates expansion from contraction.

4. Nike
Nike is due to report Q3 earnings on March 21st. Wall Street expects revenue to be $11.43 billion, up 5.1% compared to the same period a year earlier. EPS is expected to fall 38% to $0.54. Nike is expected to see an improvement in logistics and currency headwinds, but inventory could still impact margins. Close attention will also be on China sales, expected to rebound after Covid measures.

5. Banks
Banks have been under the spotlight this week following the collapse of SVB and the move by SNB to shore up Credit Suisse. With banks holding huge bond portfolios which have been hit hard by rising interest rates, this might not be the end of the banking drama. With two key central bank meetings this week, banks will remain under the spotlight.

Economic Calendar Highlights

Source: FXStreet.com

Technical Analysis:

TA of the major asset classes (Forex – Commodities – Indices…).

EUR/USD (Daily Candlestick Chart)

EUR/USD is in a sideways trend.
So far, support at 1.053 has held firm against two large bearish engulfing candlesticks. A second daily close above this supports sets up another attempt to break over the 50 SMA where, as a break, lower unearths the next leg of the prior downtrend.

GBP/USD (Daily Candlestick Chart)

GBP/USD is in an unconfirmed trend – forming a mix of lower lows and higher highs.
The false breakdown from the long-term double top has brought new upside potential with a break above the down trendline. A break of resistance at 1.22 would imply a test of the DT resistance at 1.244.

USD/JPY (Daily Candlestick Chart)

USD/JPY is in an unconfirmed trend – forming a mix of lower lows and higher highs.
The two matching lows at 132.2 are near-term support, with the big 130 level next major support. A break back over 135 is needed for the uptrend to resume.

Gold (Daily Candlestick Chart)

XAU/USD is in a sideways trend.
The price has surged back over the 50 DMA with a new higher high after forming a slightly higher low. 1950, the January high is significant resistance, which, if broken, sets up a move that could ultimately result in new all-time highs.

Brent Oil (Daily Candlestick Chart)

XBRENT is in a downtrend, forming lower highs and lower lows below the 50 DMA.
Price finally broke below the uptrend line connecting the lows since mid-November. A high-vol breakout has seen price plummet towards the 70-round number, which sits around the bottom line of the long-term down-sloping channel.

US500 (Daily Candlestick Chart)

XUS500 is in a downtrend, forming lower lows and below the 50 SMA.
The index’s price has held above 3800 (despite broader market volatility) in a sign of early strength. Retaking the last high at 3937 would suggest that the downtrend since late January is over. Another drop faces 3760 before a possible re-test of the October lows.

Thank you very much for reading – and have a great week trading!

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