Here is what you need to know on Friday, March 17:
The stock market stole volatility on Thursday. Wall Street indexes opened in the red to finish in the green with a gain of more than 1%. The Nasdaq led with a rally of 2.48%. Systemic risk fears eased, helping the market’s mood. Contributing to the improvement, 11 of the largest US banks announced a $30 billion deposit into First Republic Bank. The First Republic stock reversed a 36% drop to close the day up 10%.
Regarding US data, the Federal Reserve Bank of Philadelphia's Manufacturing Business Index for current general activity improved in March to -23.2 from -24.3 in February, a reading worse than the -14.5 of market consensus; Initial Jobless Claims pulled back after surging last week; Housing Starts rebounded unexpectedly to 1.45 million, significantly above the 1.31 million of market consensus.
As expected, the European Central Bank raised interest rates by 50 basis points. The words of the monetary policy statement and Lagarde’s were chosen carefully. In the first sentence, the ECB recognized that inflation is projected to remain too high for too long. At the same time, they are “monitoring” recent developments. The reaction in the currency market was limited. The Euro fell modestly following the ECB meeting.
On Friday, the final reading of Eurozone consumer inflation should bring no surprises. Also in the docket are US Industrial Production and the University of Michigan’s Consumers Sentiment report.
It was a quiet American session in the currency market despite what happened in Wall Street. Most of currency majors moved in small ranges. EUR/USD consolidated around 1.0600 while GBP/USD held firm above 1.2100.
Higher government bond yields and risk pushed USD/JPY back above 133.00, with the Japanese Yen flipping across the board.
NZD/USD bottomed at 0.6131 after New Zealand reported weaker-than-expected Q4 GDP numbers; it then rebounded toward 0.6200. On the contrary, Australian employment data boosted the Aussie, sending AUD/USD to 0.6650.
Gold tested recent highs but it pulled back, as yields moved to the upside; XAU/USD remains firm around $1,920/oz. The improvement in market sentiment helped modestly Crude Oil prices; WTI rose 1% to settle above $68.00.
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Plenty of hawkishness to go around
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We haven’t seen a lot in the way of volatility and price action this week, but what we have seen is a clear message coming from many central banks. That message is one of hawkishness.