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Investors brace for another week of turmoil as mad March ends

 

Global financial markets are bracing for another week of turmoil, as traders closed out a whirlwind month in which widespread concerns about US and European lenders weighed on sentiment and complicated central banks’ fight against inflation. Went.

Investors brace:

Currency markets will take a first read on Monday on demand for safe-haven assets as trading in Asia closes. Investors will focus on the yen, which killed markets over the past four weeks as fears over the health of an array of lenders hit the market. Russian President Vladimir Putin’s comments on Saturday about deploying tactical nuclear weapons in Belarus could further enhance its appeal. The Australian and New Zealand dollars, both highly sensitive to the outlook for global growth, will also be in focus.

Volatility gripped global markets again as Deutsche Bank AG became the latest lender to come under scrutiny from investors, and US Treasury Secretary Janet Yellen convened a meeting of the Financial Stability Oversight Council.

US officials are considering whether to provide aid to First Republic Bank to give it more time to strengthen its balance sheet, according to people with knowledge of the situation. Separately, Valley National Bancorp and First Citizens Bankshare Inc. are both vying for the Silicon Valley bank after the Silicon Valley bank’s collapse earlier this month, and Switzerland’s banking regulator said Credit Suisse Group AG is under potential scrutiny. There is a danger of

Top US regulators said on Friday that while some banks are under stress, the overall financial system is strong.

The banking crisis has prompted bond traders to dramatically change expectations for monetary policy. He gave up betting that the Federal Reserve would raise interest rates again in May and bet that the next shift in officials would cut rates in early June. Traders also surpassed rate-hike expectations for the European Central Bank and the Bank of England.

“When central banks get too tight, things fall apart,” said Jack McIntyre, a portfolio manager at Brandywine Global Investment Management. The level of punishment is probably a little less.”

bleak outlook

Meanwhile, a report this week could show that a key gauge of US inflation remains stubbornly high, reminding investors of the tightrope the central bank must tread to maintain both price and financial stability.

Against that bleak policy outlook, a measure of short-term Treasury note volatility is near its highest since 2008. The two-year yield hit 3.55% on Friday, its lowest since September, as traders dumped rate-hike bets. The rate has fallen more than 100 basis points since eclipsing 5% in early March for the first time since 2007.

The yen has gained nearly 4% this month, more than any other major currency, amid volatility and falling bond yields that have eroded other economies’ interest-rate advantage over Japan. Commodity-linked currencies including the Australian and New Zealand dollars are performing poorly.

Ed Al-Husseini, rate strategist at Columbia Threadneedle Investments, said he had expected a bond rally as Fed tightening slows the economy, but the volatility and speed of the move underscore the fragility of the markets.

“We were prepared for this to happen over the next nine months, but it happened in nine days,” he said. “I’m not going to complain, but I do worry about how quickly it’s happened.”

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