The Week Ahead - 2023.03.17
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After months of gradual improvement from resilient US job readings, anticipated recovery in China following the relaxation of Covid restrictions, and a 27% decline in crude oil prices from late last summer, the outlook for the global recovery has hit a bump in the road. While there has been some disappointment with progress in the inflation battle, upward revisions in central bank terminal rates and disappointing corporate news flows have played a part as well. Yet it is possible that inflation is beginning to moderate. According to some economists, the primary culprit for the increases in most recent US inflation readings were used car prices, which have gained 10% this year. Given the bankruptcy of the Silicon Valley Bank and knock-on impacts on other banks like First Republic and Credit Suisse, the markets are justifiably concerned about financial contagion. Yet another headwind has been the lack of clear and credible signs of recovery in China. Dodd Frank and other banking sector regulations implemented over the last 10 years should greatly reduce the amount of bank problems ahead. However, recent bank failures were the result of extremely poor management, as any problems arising from higher interest rates border on malfeasance considering the well-advertised intentions by the US Federal Reserve Bank. For the sake of the economy, we hope bank executive ignorance was isolated. There could be a silver lining for equity and commodity markets if the US Fed in the coming meeting decides to pause its rate increase, as the overhang of surging interest rates has been a headwind for nearly all markets except for the dollar.
- David Hightower
