A Quarter to Forget: Global Market Themes for the Week Ahead

As a tumultuous quarter draws to a close, markets will watch data from the US and Eurozone to assess how aggressive central banks might be in their fight against inflation.

Also in the spotlight will be Europe’s dilemma over whether or not to sanction Russian energy exports, which could cause further price increases and economic hardship.

Here is your week ahead in the markets:


A trader works at his stall as US Federal Reserve Board Chairman Jerome Powell is shown on a monitor on the floor of the New York Stock Exchange (NYSE) on June 19, 2019. 2019 in New York City.Drew Angerer/Getty Images

Is the Fed’s aggressive path to tighten monetary policy too aggressive or not aggressive enough? Friday’s March US jobs report could appear.

Economists polled by Reuters expect 450,000 new jobs to be created, up from 678,000 in February.

Hiring well above those estimates will strengthen the case for a 50 basis point interest rate hike in May. After all, Fed Chairman Jerome Powell has signaled that he is willing to make a big move if necessary.

Despite that, the S&P 500 has managed to nearly halve its year-to-date losses. But watch the US Treasury yield curve, which is edging closer to inversion as investors worry about a Fed-induced recession. The bond market is rarely wrong.


A gas torch is seen next to the Lukoil company sign at the Filanovskogo oil platform in the Caspian Sea, Russia, on October 16, 2018.MAXIM SHEMETOV/Reuters

Targeting Russian energy, as the United States and Britain have done, is one of the most powerful levers the European Union could use to punish Moscow for its invasion of Ukraine. But it remains a divisive option for the bloc that relies on Russia for 40% of its gas and is reeling from rising fuel prices.

But as pressure mounts to announce a ban, there has been a new twist: President Vladimir Putin’s demand that “enemy” countries must pay for gas in rubles is raising even more concerns about Europe’s energy crisis.

EU leaders could soon agree to jointly buy gas and secure additional US gas supplies. But in the meantime, the debate is causing unease in all sorts of quarters. Oil producer group OPEC, for example, warned that the move could hurt consumers.


European Union flags fly in front of the European Central Bank (ECB) headquarters in Frankfurt, Germany, on April 26, 2018.KAI PFAFFENBACH/Reuters

When the first estimates of euro zone inflation for March emerge on Friday, they may test the European Central Bank’s narrative that there is no rush to raise interest rates.

Inflation is already at an all-time high of 5.9% and could hit 7% in the coming months. Given the ECB’s 2% target, it’s no surprise that some officials are urging one or even two rate moves this year.

A strong impression of inflation will strengthen your case. But bond markets also suggest higher rates are on the way, having priced in five moves of 10 bps each by the end of the year.

Germany’s two-year bond yield rose 30 bps in March, posting its biggest monthly rise since 2011. Having spent years in negative yield territory amid the ECB’s bond-buying to boost inflation, it is becoming rapidly approaching 0%. That is significant.


Sacks of wheat grain are seen at a sheep farm in Montejaque on March 11.JORGE GUERRERO/AFP/Getty Images

The first quarter of 2022 was one that most investors would prefer to forget. Except, of course, those who trade oil, metals or grains, who would have rejoiced to see Brent crude soar above 50%, and a 30% gain for the CRB commodity index.

It was less rewarding in stocks; Down 5%, the S&P 500 looks poised to snap a seven-quarter winning streak. Nasdaq eurozone stocks fared worse, while Chinese markets had to deal with new COVID-related lockdowns in many cities.

Bond markets are reaching milestones not seen, in some cases, for decades. The 140 basis point rise in two-year US yields is the largest since mid-1984; the German equivalent will post its biggest quarterly increase since 2011.

Not surprising, given central bankers’ recognition that inflation is not transitory after all and that interest rates must rise. Global inflation will hit 6.3% this quarter, the fastest rise in a quarter century, JPMorgan estimates.

Finally, pity those who didn’t manage to get out of Russia investments in time: with the country kicked out of the stock and bond indices, they’ll need to mark their holdings to zero.


A vehicle drives past some of the 39 buildings developed by China Evergrande Group that authorities have issued a demolition order at the man-made Ocean Flower Island in Danzhou, Hainan province, China, on Jan. 6.SONG BY ALY/Reuters

China’s commitment not to implement a property tax offers only short-term relief for developers struggling with debt restructuring and access to finance.

Evergrande, the poster child for the sector’s woes, has revealed new problems at a key subsidiary and will not release audited results before a March 31 deadline.

Another beleaguered developer, Kaisa, said the same thing, though others including China Vanke, Country Garden and Sunac China plan to release full-year results next week.

Chinese developer stocks and high yield bonds remain under pressure. Real estate woes will remain on investors’ must-watch list until some real relief measures emerge.

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