Local and global equity markets were mixed to slightly weaker for the week as investors digested key economic data and US banking sector stress. 

US banks came under pressure again after First Republic, a San Francisco bank, reported a poor set of quarterly results, with investors again questioning the regulator / central bank’s resolve. 

The US economy is proving resilient, but we continue to expect rapid monetary tightening to trigger a recession later this year. Our models still point to elevated recession risk, and a recession beginning later this year remains our base case. Stresses in the banking sector mean that credit conditions are likely to continue to tighten, consistent with the Fed killing the cycle. 

Internationally, central banks continue to be the focus with the US Fed and ECB both expected to hike rates. In the US we are likely to see a 25bps hike which is almost fully priced in now by the market. Powell’s comments will be closely scrutinised to see if further hikes are on the table or if they pivot towards the market which is expecting the Fed to begin cutting through the latter part of this year. Over in Europe, the ECB meets with markets torn between 25 vs. 50bp, although we think 25bps more likely.

Australian headline inflation rose by 1.4% in the quarter which saw the annual rate fall to 7%. The RBA’s preferred measure of underlying inflation increased by 1.2% in the quarter with the annual rate falling to 6.6%. Goods inflation falling sharply, services inflation going the wrong way. Good to see it lower overall, but plenty of work still to be done.