Markets Wrap (3–16 April)

Stocks
Stoxx Europe 600 saw four weeks of gains, which fully erased the decline sparked by banking sector worries and took it 9% above the March low. Closer scrutiny, however, paints a less bullish picture, as classically defensive sectors (such as consumer staples and health care) played leading roles in the rally. Another trait of recent market behavior is low trading volumes and low volatility, which shows a lack of conviction from the part of investors who are trying to estimate when the hiking cycle will end and what is the seriousness of a potential recession. 

Inflation
US CPI In March fell to the lowest level since April 2021 (5.0%), whereas core inflation settled at 5.6% in line with expectations. In the Eurozone, headline price growth (6.9%) also remained on a firm downtrend primarily due to a high base effect, but core inflation reached another high of 5.7%. 

All three main measures of price growth came in lower than expected in March in Sweden, with CPI at 10.6% (versus the median forecast of 11.0%), CPIF (assuming fixed interest rates) at 8.0% (8.3%) and CPIF excluding food and energy of 8.9% (9.1%). This is the last reading before the Riksbank meeting on 25 April, for which a 50 bps hike (to 3.5%) is priced-in by the market. SEK has lately weakened partly due to the potential impact of higher interest rates on consumption (a relatively large share of loans issued in Sweden are floating rate). 

Central banks 
FED Governor Ch. Waller noted that not enough progress has been achieved in returning inflation to the 2% target despite a series of rate hikes, as credit conditions have not tightened sufficiently and the labor market remains too strong. Following his remarks, traders assign a 100% probability to one more 25 bps interest rate increase by the FED. In a similar fashion, the ECB Vice-President L. de Guindos  stressed that the high level of core price growth has been more persistent than the central bank expected. Three more full hikes by the ECB are currently priced-in, which would bring the deposit rate to 3.75%. A recent poll conducted by Bloomberg shows that the majority of economists surveyed concur with the market's view. 

Commodities 
Oil price briefly spiked following OPEC's surprise announcement of o production cut of ~1.15 million barrels per day at the beginning of April, but then quickly stabilized with Brent trading in the 80-90 USD/bl price range, which has been more or less prevalent since the beginning of December 2022. 

Signs of an economic slowdown have recently appeared in the diesel market. In China, the number of trucks is down in recent weeks and in Europe diesel's premium versus crude futures is at the lowest level in more than a year (Chart 6). S&P Global projects a 2% total demand slump in the US in 2023, which would be the biggest drop since 2016. 

Five EU countries (Poland, Hungary, Romania, Bulgaria and Slovakia) have banned imports of Ukrainian grain over concerns that the supply glut is hurting their domestics markets. Grain prices have slumped by more than 40% since the peak reached in mid-2022, but are still elevated compared with pre-war levels (Chart 2).