Will inflation play the first fiddle today?

Nervousness after the collapse of US banks remains high. Other regional institutions lost again. US bond yields recorded a massive decline. Despite the swift action of US regulators to support depositors of bankrupt entities, risk aversion remains high.

Today the market will be looking at the US CPI for February. Futures pricing on the Fed's interest rate path is largely indicative of a reduction in the March rate hike.

The US will do whatever is necessary

Americans they work very fast, all so that fear and risk aversion do not spread widely on the market. The Federal Reserve itself has announced that it is prepared for any liquidity pressure that may arise. The Bank Term Funding Program was created. It will offer loans for up to one year to banks, savings associations, credit unions and other authorized depository institutions.

This program will accept US collateral treasury papersagency debt and mortgage-backed securities and other eligible assets. They will be valued at face value.

President Biden spoke on this matter, who declared that the USA they will “do whatever is necessary” to strengthen the banking system. HSBC decided to buy SVB. The value of this transaction is symbolic 1 pound.

Sale on the parks

A strong sell-off affected European stock exchanges yesterday. DAX, CAC40, FTSE100 or EuroStoxx50 made a significant correction. Quotations found themselves in an interesting place from the side of technical analysis. The current declines are very similar in terms of size to those that occurred in the second half of December last year.

The market has largely revised the Federal Reserve's next steps. The probability of a 25bp move next week has dropped to 59%. On the other hand, the possibility of a move of 50 bp has been practically eliminated.

Today, investors are waiting for information on inflation in the United States in February. Forecasts point to decline in the headline ratio to 6 percent. (from 6,4 percent in January) and the baseline to 5,5 percent. (from 5,6 percent previously). The important question is whether in this critical period the market will be able to change its expectations regarding further Fed decisions after the publication of today's data.

Source: Łukasz Zembik, OANDA TMS Brokers