Everything starts all over again

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After the collapse of Silicon Valley Bank, the Credit Suits incident and the great concern in the banking sector led the Fed to change its rhetoric

Although the Fed, which raised inter- est rates by 25 basis points in line with expectations at the last meet- ing, emphasized that the fight against inflation will continue, Powell, said in subsequent remarks, that recent turmoil in the banking sector will fur- ther tighten credit for U.S. households and  businesses. “Such  a tightening in financial conditions would work in country’s economy. On the otherhand, industrial output expand the same direction as rate tightening,” Powell said, adding “You can think of it as being the equivalent of a rate hike or perhaps more than that,” which seemed to signal that the Fed might pause its relentless rate hikes. He also said that banking issues in the US could undermine the whole system if they remain unchecked. Powell how- ever, also added that central bank will conduct more rate hikes if it needs to in order to fight inflation.

Looking at important macroeconomic data announced on the US side, prices in February were 6% higher than a year ago, down from an annual rate of 6.4% in January and in line with expectations. The ISM manufac- turing purchasing managers’ index (PMI) came in at 47.7% in February, 0.3 percentage point higher than 47.4% recorded in January. Total nonfarm payroll employment increased by 311,000 in February, above expecta- tions but the unemployment rate in February, rose slightly to 3.6 percent.

Eurozone inflation

The European Central Bank ( ECB) continued its rate hikes increasing interest rates by 50 basis points in March to 3.5 percent. In Germany, the eurozone’s locomotive economy, The annual inflation of Germany, the euro- zone’s leading locomotive economy, was at 8.7% in February, unchanged from the January figure and remaining far from the targeted level. The eurozone’s year-on-year inflation rate stood at 8.5% in February, down one tenth of a percentage point from January. Also in March, EUR/USD has deep- ened its pullback, falling towards  a key support at 1.0575 with sellers, and testing the the critical 1.0830 level. The Swiss LIBOR rate rose by 50 basis points to 1.5%. The Swiss franc, on the other hand, continued to attract safe-haven demand as it strengthened against other major currencies, particularly the dollar.

UK inflation problem growing by the day

The Bank of England (BOE) main- tained its tight monetary policy, raising the key interest rate by 25 basis points to 4.25%. Inflation, on the other hand, continued to hover around double dig- its and came in at 10.4% in February, up from 10.1% in January, The S&P Global/CIPS UK Services PMI rose to 53.3 in February of 2023 from 48.7 in January, the highest in eight months and beating market expectations. The contraction in manufacturing output deepened, falling by -0.4 per cent.

Strong data flow from Asia finds response in global economy

China’s    annual     inflation   rate fell  to 1.0%  in February 2023 from ed 2.4% year on year in January– February, undershooting market expectations for a 2.6% expansion, although remaining above the pre- vious month’s 1.3%. In Australia and New Zealand, economic contrac- tion continued. According to data announced in March, Australia’s economic growth slowed to 2.7 percent year on year in the December quarter 2022 by 0.5 per cent on a quarterly basis. In New Zealand, GDP data for the fourth quarter showed an annual decline of  2.2 per cent.

In Türkiye: Ambiguity and a search for direction continue

Rising   tensions   and   lingering uncertainty in the days leading up to the elections led to a brief rally in the USD/ TRY exchange rate in March. Seeking equilibrium at the 19.04 level, the dol- lar-lira exchange rate remained stable, fluctuating around this level. In the Borsa İstanbul, a sawtooth market per- sisted in the 5350-4950 range. Industrial production data released for February showed an increase of 4.5% on an annual basis. While the decline in the unemployment rate to 9.7% in February was promising, the expansion in retail sales data continued to send even more positive signals. The Central Bank of Türkiye (CBRT) left its key interest rate unchanged at 8.5 percent in March.

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