Recently seen banking crises, increased market uncertainties, and changed the analysts’ market outlook. Some analysts now believe that central banks will not need to try to cool down the economy, and it has enough reason to slow down, especially with the fear of banking bankruptcy. Nevertheless, ahead of next week’s Fed meeting, ECB had no sign of fear.
ECB raised the rates by another 50 bps to 3.50% and emphasized on data-dependent approach to policy rate decisions. Mrs. Lagarde confirmed that recent tensions added to the uncertainty level in press conferences. ECB believes that “inflation is projected to remain too high for too long.” That means the European central bank is ready to raise the rates and cool down the economy even if it ends with a recession. The ECB policymakers also decided to extend the Pandemic emergency purchase program (PEPP) purchase plan until at least the end of next year while maintaining the reduction of 15 billion euros in asset purchase plans before June. About the outlook, the ECB expects a median of 5.3% inflation for 2023, down from the previous 6.3% estimates, and further declines to 2.9% and 2.1% in the next year and the year after. Regarding economic forecasts, the Committee expects GDP growth of 1.0% this year (previously 0.5%) but lowered its projections for 2024 and 2025 to 1.6%, down from 1.9% and 1.8%, respectively.
US economic data were mixed on the other side of the Atlantic Ocean. Initial Jobless claims for the week ended March 11 again decreased to 192K, lower than estimates and the week before that. The same for continuing jobless claims, down to 1.684 million, much lower than the market expectation of 1.715 million and the previous week of 1.713 million. The data reflected that the US labor market remains firm.
In addition, US housing data also was encouraging. The new housing starts in February raised by 1.45 million, higher than market expectations of 1.31 million and 1.321 million in January. The data hit a new high since August last year. In addition, the total number of building permits rebounded from 1.339 million to 1.524 million, the highest since last October.
In addition, the US import price index recorded -0.1% month-on-month in February, slightly better than market expectations of -0.2% and the previous value of -0.4% (previously -0.2%). On the other hand, the Philadelphia Fed manufacturing index recorded -23.2 in March, lower than market expectations of -15.6 but slightly better than the previous value of -24.3.
Putting data together from the US, China, and Europe tells us that Economic data, at the same time, is OK, sitting on a scary edge, ready to fall. IF central banks continue the hawkish tones and policies, we will face the recession with no doubt, but if, at the same time, governments and central banks can not save the dominoes fall of banks, that expected soft landing can end with a sharp fall. On the other hand, if banks become more cautious considering the new conditions, the fate of inflation can even be worse than recession! This mint condition can increase uncertainty, which means more demand for traditional safe0havens, like gold, Japanese Yen and Silver. Despite yesterday’s slight recovery, stock markets can continue under pressure until the Fed meeting, where we have a brighter outlook and idea of the future.