Vinod Bhat's Market Pulse - Mar 16, 2023
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Volatility Index (VIX) jumped back up above 26 levels on concerns about US/global financial system risk, after credit-default swaps for Zurich based Credit Suisse spiked to levels that signalled it could be in financial distress.
However, markets got some relief after Switzerland’s central bank and financial regulator said Credit Suisse will receive a liquidity backstop if needed, in an effort to arrest the slump in confidence.
Meanwhile, US economic data showed that sales at retailers fell 0.4% month-on-month in Feb and declined for the third time in four months, pointing to a slowdown in consumer spending.
Ultimately, US inflation and jobs data are more significant in guiding the Fed’s policy decisions. And while these data points indicate that high inflation and tight labour market conditions still dominate, renewed concerns regarding the banking sector and currently elevated market volatility complicates the Fed’s task at its next policy meeting on March 22.
In a sign of the rapidly changing sentiment regarding US and global economy, futures are pricing in 100 bps of rate cuts by the Fed by the end of this year. Brent crude has also fallen below $75/bbl.
India markets are currently being driven more by changes in the global macro conditions and will continue to be volatile in the short term.