GEMFOREX - weekly analysis

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

Banking sector turmoil

Investors are bracing for more unrest in the banking sector, after the collapse of two U.S. banks earlier this month and last weekends forced takeover of Credit Suisse by rival UBS and the writedown of some of its contingent convertible bonds.

Many worry that other bad surprises are lurking as the series of aggressive rate hikes by the Federal Reserve over the past year moves through the economy.

In recent days, investors have focused on German giant Deutsche Bank (ETR: DBKGn). The company‘s shares have lost more than a quarter of their value this month, including Friday’s 8.5% fall, and the cost of protecting against a default on its bonds soared, even though few put it in the same category as Credit Suisse.

Turbulent first quarter

As a turbulent first quarter draws to a close, investors are looking ahead to what Quarter 2 might bring.

January saw the biggest rush into equities for the first month of the year on record, as investors loaded up on stocks. The threat of inflation looked less dangerous, and the economy appeared robust.

But fast forward to the end of Q1 when a lot of crypto companies have collapsed, U.S. regional banks stocks have tanked in the wake of the Silicon Valley Bank collapse and Credit Suisse has imploded.

Fed Chair Jerome Powell said banking stress could trigger a credit crunch with “significant” implications for a slowing U.S. economy.

While Fed officials continue to see additional rate hikes as a strong possibility, financial markets are now favoring the likelihood of a no hike at all at the conclusion of the central banks next policy meeting in May.

U.S. data

It‘s set to be a much quieter week on the economic calendar - the highlight will be Friday’s core PCE price index - the Fed's favored measure of inflation. It accelerated in January, adding to concerns over the prospect of a more hawkish Fed.

Consumer confidence data for March will be released on Tuesday and is likely to show the impact of stresses on the financial system.

Other reports include data on pending home sales, revised GDP, and initial jobless claims.

Several Fed officials will also speak during the week.

Eurozone inflation

The Eurozone will be releasing what will be closely watched inflation data on Friday. While headline inflation is expected to slow, the underlying rate of inflation, which strips out volatile elements including food and fuel prices, is expected to accelerate.

The European Central Bank raised interest rates by 50 basis points earlier this month to 3%, but some policymakers are now calling for more careful steps as past rate hikes are now taking hold and the economy is starting to respond.

Meanwhile, the banking crisis has prompted fears that lending will slow, acting as a drag on the economy.

ECB President Christine Lagarde will be making a speech on Tuesday. Certainly, investors will be on the lookout for any indications of how policymakers are viewing the inflation threat amid ongoing turbulence in the banking sector.

 China PMIs, Tokyo inflation

Chinese PMI data on Friday will be closely watched as market watchers try to assess the strength of the recovery in the worlds second-largest economy, in the wake of the lifting of pandemic restrictions.

In Japan, Tokyo inflation data on Friday will be in the spotlight - the report is expected to show that inflation surpassed the Bank of Japans 2% target for the tenth month in a row.

Expectations are high that incoming BOJ Governor Kazuo Ueda will oversee the unwinding of yield curve controls and negative interest rates during his tenure after a decade of unprecedented stimulus by his predecessor.

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