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Retail sales, Credit Suisse low, China underwhelms - what's moving markets.

By Geoffrey Smith

© Reuters -- The bond market swings back to expecting a 25 basis point hike from the Federal Reserve next week as the kneejerk reaction to last week's bank collapses fades.

Credit Suisse looks increasingly like the next shoe to drop as a key backer says it can't (or won't) pump in any more money. Retail sales for February are due and are expected to show a drop from an abnormally strong reading in January. China's economy is making a so-so recovery, according to new data, while French inflation and a solid industrial output report for January keep the ECB on track for a big hike at Thursday's meeting. And oil hits a 15-month low as global stockpiles grow. Here's what you need to know in financial markets on Wednesday, March 15th.

1. Market swings back to expecting a Fed rate hike

The idea that the Federal Reserve would stop its interest rate hikes due to fears of provoking a banking collapse proved short-lived.

Short-term interest rate futures are now back predicting a 25 basis point hike at next week’s Fed meeting, while bond yields retraced a big part of their decline in response to the collapses of Silicon Valley Bank and Signature Bank (NASDAQ:SBNY). That’s down partly to the fact that Tuesday’s CPI report for February didn’t fall far enough to convince anyone that the battle with inflation is over, but is also due to the realization that a pause to rate hikes could be taken as a sign of panic, undoing any good work done at the weekend to stabilize the situation.

There’s more important economic data due out at 08:30 ET (12:30 GMT), with February’s retail sales expected to show a 0.3% drop, which would follow January’s exceptionally strong 3.0% rise.

2. China's lukewarm recovery; euro zone data keeps ECB on track for 50 bp hike

New figures out of China pointed to a solid if unspectacular recovery from the COVID ravages of late 2022.

Retail sales led the way, rising 3.5% from a year earlier in the first two months of the year, while fixed asset investment growth ticked up to 5.5%, a sign that the real estate sector may be bottoming out. However, industrial production was up only 2.4%, less than expected, and there was a worrying rise in the unemployment rate, especially among younger age cohorts.

Data out of the euro zone was no more encouraging, as a big upward revision to French inflation all but quashed any remaining hopes of the ECB trimming its plans for a 50 basis point rate hike on Thursday. Euro zone industrial production also surprised to the upside, with a 0.7% rise in January.

3. Stocks fall as Credit Suisse low spooks nervy market

U.S. stocks are set to open sharply lower, as fear once again replaces relief as the dominant emotion. In particular, the strong move upward in regional bank stocks seen on Tuesday has given way to a more nuanced picture.

Moody’s again reflected broader sentiment by cutting its outlook for the entire U.S. banking sector’s credit to negative. Credit Suisse (SIX:CSGN) provided an eerie, if unrelated echo, falling 22% in Europe after Saudi National Bank (TADAWUL:1180) said it couldn’t (or wouldn’t) pump any more money into the troubled lender.

By 06:30 ET, Dow Jones futures were down 470 points or 1.5%, S&P 500 futures were also down by a similar amount, and Nasdaq 100 futures were down slightly less, by 1.4%.

Facebook owner Meta Platforms (NASDAQ:META) is consolidating in premarket after hitting a 9-month high on Tuesday in response to its latest slimming-down exercise. Adobe (NASDAQ:ADBE) leads a thin earnings roster after the close, while Lennar (NYSE:LEN) is up after reporting better-than-expected figures on Tuesday evening.

4. Samsung unveils massive chipmaking investments as South Korea responds to IRA

Samsung (KS:005930) said it will invest some $230 billion in its chipmaking facilities over the next 20 years. The investments account for more than half of those foreseen by a new South Korean government plan to shore up a key sector of the economy, which is caught uncomfortably in the middle of the tussle for global supremacy between the U.S. and China.

South Korea’s 550 trillion won ($1 = 1,316 won) plan also envisages expanded tax breaks to raise the competitiveness of display and battery makers. Coming on the heels of the Inflation Reduction Act and comparable initiatives in Europe, the plan represents a further escalation of the global race to subsidize strategic industries in the new economy.

5. Oil hits 15-month low as stockpiles grow

Crude oil prices fell to their lowest in 15 months as fears for the global economy increased in the wake of the U.S. banking collapses. The relatively anemic rebound in industrial production in China also prompted the unwinding of some bets on Chinese demand. By 07:00 ET, U.S. crude futures were down 1.6% at $70.22 a barrel, while Brent was down 1.6% at $76.22 a barrel.

OPEC on Tuesday had kept its forecast for world oil demand growth this year unchanged at 2.3 million barrels a day, expecting a slowdown outside China to compensate for the rebound in demand there. The International Energy Agency said in its latest monthly report that global stockpiles had hit an 18-month high, creating a sizable buffer to cope with an expected tightening of the market later this year.

The U.S. government will publish its weekly inventory data at 10:30 ET.


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