An encouraging end to the week for stock markets ahead of US inflation data

An action-packed end to the week, month, and quarter sees equity markets cautiously higher going into the weekend.

If we end the week in the green, that's a big deal considering how almost disastrous the rest of the month was. Confidence is easily shattered and difficult to restore and a positive end to the week would send a strong signal that investors are feeling reassured by the lack of turmoil recently.

We saw quite the opposite a week ago, as a spike in Deutsche Bank credit default swaps triggered another sell-off in bank stocks which reverberated elsewhere as well. Investors' willingness to carry risk into the weekend, considering how eventful they have been this month, is a strong signal that they believe the worst is now behind us.

US data and Fed speak in focus

Of course, there are other things that could blow this off-course. We have a wide selection of US economic data due as well as more Fed speak which could hit sentiment again in the final hours of the week.

The obvious standout is the inflation data - and the Fed's preferred gauge at that - which is expected to show further stubbornness in price pressures. Income and spending data will be released alongside it and will be just as impactful as a signal of how sustainable those price pressures are.

Core inflation remains a concern for the ECB

Eurozone headline inflation fell considerably again in March - dropping from 8.5% to 6.9% ​ - but ECB policymakers will not be celebrating a hard-fought victory as core inflation once again hit a record high at 5.7%. The latter will remain a real concern for policymakers and ensure the tightening cycle will continue in May. Markets are pricing a 25 basis point hike as a near-certainty and we could see expectations for 50 creep higher between now and then if the data doesn't improve. Of course, recent turmoil in the banks provides a strong argument against 50bps and may well prove enough of one to quickly end that debate. A lot can happen in a month.

UK surprises with growth in Q4

Not only is the UK not in recession, it even managed to eke out a tiny amount of growth in the fourth quarter, revised GDP data showed this morning. I'm not sure it's cause for celebration but a resilient economy, considering the bleak forecasts at the time, is good reason for hope in what will be another challenging year.

Domestic economy driving Chinese recovery

The PMIs from China earlier in the day highlighted the varying reopening rebounds being experienced in different parts of the economy, not to mention the challenges it will likely continue to face. The domestic economy is performing well and local demand will probably be the dominant driver of the rebound this year. External demand is less assured and this was reflected in the underperformance of the manufacturing PMI. Policymakers will likely be perfectly content with this though, even encouraged by the strength of the domestic recovery.

Economic fears weigh on oil recovery

Oil prices are continuing to gradually recover but remain way off pre-banking mini-crisis levels. The prolonged economic scarring of the last month will likely slow the economy if not cause a recession and lower interest rate expectations are not enough to support oil prices in the short term.

They continue to trade around the range lows from the months that preceded recent events and may struggle to reestablish themselves around those previous levels. The recovery may be a slow grind as confidence improves and we learn what the longer-term consequences are of what we've seen in the banking sector. ​ ​

Gold facing strong resistance at $2,000

It's been a very good start to the year for gold and the banking turmoil in March was another very bullish catalyst for it. So much so that it's barely given back any of those gains as interest rate expectations have barely shifted back and yields have remained lower. Gold bulls may be encouraged by this but $2,000 could be a big barrier to overcome, considering it's already failed here twice over the last few weeks. A hold above that level could be the catalyst for a run at all-time highs around $2,070.

You can't ignore the power of a crypto rally

It's impossible to ignore cryptos at the moment given how they've traded throughout the banking mini-crisis, especially when you consider how directly crypto was impacted, and of course, all of the regulatory attention the industry has attracted. Bitcoin is slightly lower today but that doesn't really matter considering it remains around recent highs. As for where next, it's anyone's guess. Recent moves may not make sense to a lot of people and most explanations may be nonsense but you can never ignore the power of a crypto rally.