European rate rises and bank bailouts calm global markets

European Central Bank hiked its benchmark interest rate by 50 basis points as expected this morning but gave no signals about future moves. US economic data remains resilient. Markets welcomed continued efforts to control inflation, and another bank bailout (but bigger). How the Fed responds with rate rises is a key focus.

Markets rallied on relief at a Euro rate hike

• Stocks were reassured by ECB's move, and its message that "all is well"
• At the time of writing, the broad S&P 500 index was up 1.4%, with the tech-heavy NASDAQ up 2.2%
• The VIX, Wall Street’s fear index, fell back below 24 for a high of 30
• The dollar index remains under pressure as the ECB is now seen as the more hawkish currently, with the index trading near 104.5
• Yields on2- and 10-year Treasuries traded at 4.15% and 3.56%, modestly higher

Another bank bail-out, but bigger

• The Swiss National Bank gave a lifeline to Credit Suisse today by extending a loan of up to $54 billion to the troubled bank, who’s problems go beyond the recent rise in interest rates
• Reuters reports that the move came after Swiss authorities provided assurance that the bank met “the capital and liquidity requirements imposed on systemically important banks”
• The loan bought time for the bank to carry out its restructuring plan

Commodities make modest gains

• Crude oil prices are modestly higher at $68.3, holding above Wednesday's 15-month lows
• Corn prices posted 1% gains on news of more export sales to China this morning
• Wheat and soybean prices were back in negative territory
• The Ukraine grain initiative is expected to be extended past this weekend, but for how long remains uncertain

China still playing matchmaker

• China continues to expand its influence in the world, taking aim at brokering a peace deal between Russia and Ukraine after a similar peace initiative between Iran and Saudi Arabia
• China wishes to be seen as world leader in the world, competing with the US, and pushing the yuan closer to being considered a world currency to challenge the US dollar

Economic data remains robust, with inflationary undertones

• This week’s unemployment report and housing starts re-emphasized the tightness of the US jobs market and strength of the real economy, suggesting wage inflation will continue to be a major problem, and a pause in the rate hikes – even though the Fed may deem it necessary to support the banks – risks making that inflation problem worse
• First-time claims for unemployment benefits fell to 192,00 in the week ending March 11, below analyst expectations of 205,000 and down from 212,00 the previous week
• The four-week moving average edged down to 196,500 claims, down from 197,250 the previous week
• Continuing claims for the week ending March 4 fell by 29K to 1.684 million, with the four-week moving average at 1.676 million
• Housing starts jumped to an annualized rate of 1.450 million in February, up from analyst expectations of 1.315 million
• Permits for new housing starts surged to an annualized rate of 1.524 million, up from 1.339 million in January and above analyst expectations of 1.340 million

Warmer weather jump starts growing seasons

• The Climate Prediction Center released its extended outlook this morning, reflecting a weather pattern that continues to evolve following three years of a La Nina influence
• The Australian Bureau of Meteorology now calls for a strong El Nino weather pattern by the end of the Northern Hemisphere summer that typically reduces risks for the primary US crop areas in the coming growing season, while raising risks for Asian crop areas
• The spring growing season should get a jumpstart by late March or early April if this all pans out

Analysis by Arlan Suderman, Chief Commodities Economist

Contact: Arlan.Suderman@StoneX.com