A lot of investors went in to this year expecting the U.S.
interest rate outlook to reveal itself, and for clarity on that
front to inform pricing for pretty much everything else.
Three months have gone by and it hasn't quite worked out
that way.
Pulling in one direction is a bank collapse that set
interest rate expectations diving. Pulling in the other is
persistently high inflation.
After a month of wild swings for bonds and interest rate
futures, rate expectations are settling around a peak in the Fed
funds rate near 5% and then steady downhill from there.
Traders reckon policymakers will need to be careful while
the effects of fragile bank confidence roll through the economy.
The outlook remains far from clear while the sentiment on
banks and lending is so delicate. One piece of clarity is the
contrast with Europe, where markets have priced in another 50
basis points in hikes this year and inflation is running hot. Euro zone inflation data later in the day can reinforce
that, if it echoes stronger-than-expected German figures
published on Thursday. The euro is up 1.8% on the
quarter. Sterling is up 2.5%.
Nerves on banks and lower U.S. Treasury yields have
delivered investors into the arms of profitable, big cap
technology companies. The Nasdaq , is eying its best
quarter in more than two years.
Elsewhere, there are positive signs - China's manufacturing
activity expanded again in March, albeit at a slowing pace, and
there are growing signs of an end to the regulatory storm there.
E-commerce firm JD.Com is planning to spin off its
property and industrial units, sources told Reuters, following
in the footsteps of similar plans at rival Alibaba ,
which markets have taken as a broadly encouraging signal.
On the flipside, Japan's government said on Friday it plans
to restrict exports of 23 types of semiconductor manufacturing
equipment, aligning its technology trade controls with a U.S.
push to curb China's ability to make advanced chips.
The second quarter may prove as difficult to navigate as the
first.
Key developments that could influence markets on Friday: Economics: Euro zone inflation, U.S. core PCE <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Q1 world markets ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting by Tom Westbrook; Editing by Muralikumar Anantharaman)
