As traders close up a crazy month in which worries about US and European hindered central banks’ efforts to combat inflation, the world’s financial markets are set for another week of turmoil. The market volatility still persists.
Swiss Franc and Japanese Yen recorded small gains against the dollar when the business week started in the early morning. With Russian President Putin’s comments regarding the stationing of tactical nuclear weapons in Belarus, traders focused on haven assets. Although European Central Bank Vice President Luis de Guindos stated that the central bank would approach interest rate policy on a meeting-by-meeting basis due to the uncertainties in the banking sector. The euro saw no change.
The Increasing Demand for Haven Assets against Market Volatility
Demand for haven assets has surged especially the yen against the market volatility. It has gained over the previous four weeks to market volatility. Concerns about several lenders’ health have made prices tumble. The world’s markets were once again volatile. On Friday+, US Treasury Secretary Janet Yellen called a meeting of the Financial Stability Oversight Council as Deutsche Bank AG became the newest institution to come under investor scrutiny.
According to those with knowledge of the matter, US authorities are debating whether and how to support First Republic Bank to give it more time to strengthen its balance sheet. Separately, Switzerland’s banking watchdog stated that Credit Suisse Group AG faces the possibility of a potential investigation. It is reported that First Citizens Bancshares Inc. and Valley National Bancorp are competing for Silicon Valley Bank after it fell earlier this month.
Leading US authorities stated on Friday that the financial system is stable while certain institutions are experiencing stress.
Bond traders’ expectations for monetary policy have been drastically altered due to the banking problems. They gave up betting that the Federal Reserve would increase interest rates again in May. The increased wagering would be the next move by the policymakers as early as June. Also, traders reduced their expectations for rate increases from the Bank of England and the European Central Bank.
Gloomy Outlook
This week’s report may reveal that a crucial indicator of US inflation is still very high, reminding investors of the fine line the central bank must tread to preserve both pricing and financial stability.
As per Bloomberg News, a measure of the volatility of short-term Treasury notes is almost at its highest level since 2008. On Friday, when traders sold their bets on a rate hike, two-year rates hit 3.55%, their lowest level since September. Since falling below 5% in early March for the first time since 2007, the rate has decreased by more than 100 basis points.
The yen has increased by almost 4% this month, more than any other leading currency. It is due to the volatility, and falling bond rates have lessened other economies’ interest-rate advantages over Japan. Australian and New Zealand dollars and other commodities-related currencies could have done better.
