Macro Pulse

This week’s key release, namely April’s US CPI data, more or less met market expectations while on the policy front the Bank of England matched forecasts too in hiking the Bank rate by 25bps. Otherwise the stability of the US banking sector and debt ceiling politics were a couple of themes for investors to additionally focus on.

Financial market jitters have resumed in recent days in part because of renewed concern about funding pressures in the US banking sector. Forward-looking US economic data have additionally disappointed expectations and continue to flag non-negligible risks of a recession in the period ahead.

Concerns in financial markets about the health of the US and European banking sectors have continued to ebb in recent days leaving more familiar macro factors to re-take centre stage. The focus this week in particular has been on the Q1 US earnings season but some stronger-than-expected GDP data from China and another positive inflation surprise from the UK were also in the limelight. 

The IMF has trimmed its global growth outlook for this year and flagged downside risks from a potential further flare up of financial instability. Lingering concerns about high inflation and tight labour markets were also emphasised, not least because a further monetary policy response might re-ignite financial market tensions. In our charts this week we pick up on these themes. 

The additional liquidity support that’s been offered by central banks, and the Fed in particular, coupled with heightened expectations of a pivot toward looser monetary policy have allayed concerns about banking sector stress in recent weeks. Many observers, nevertheless, are questioning whether the conditions that ultimately warrant this additional policy support will be positive for growth and profitability in the period ahead. Many of our charts this week weigh in on this debate.

A more positive mood in financial markets has unfolded so far this week as fears about the health of the world’s banking sector have ebbed. For how long that more positive mood endures is, however, still open to much debate. Most of our charts this week we weigh in on that debate with some fresh insights on the recent dataflow.

Financial market sentiment has improved over the last few days thanks to reassuring communications and targeted policy support from central banks as well as a high profile acquisition in Switzerland. Although the Fed has subsequently enacted a 25bps rate hike, Chairman Powell has further assuaged market fears by suggesting the US tightening cycle is nearly complete.

Growing fears about the underlying health of the world’s banking sectors have dominated the financial headlines in recent days and a trend toward risk aversion has clearly been in the ascendancy. Central banks, in the meantime, are now under more pressure to offer targeted support and more generally to halt their tightening campaigns in order to restore financial stability.

Against a backdrop where the US economy has been showing unexpected resilience and firmer-than-expected inflation it was perhaps unsurprising that Fed Chairman Powell suggested in testimony this week that monetary policy could remain tighter for longer. Still, as many of our charts suggest this week, the broader world economy is now undeniably sitting on more fragile foundations, no doubt in part because of tighter US monetary policy.