By Noreen Burke
Investing.com -- Investors will be hoping for some stability to return to markets roiled by bank failures in the coming week as they weight the ongoing fallout from the forced UBS-Credit Suisse tie-up. Upcoming U.S. data could show how much the market turmoil is making recession more likely. Eurozone inflation data and PMI data out of China will also be in focus.
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Banking sector turmoil
Investors are braced for more turmoil in the banking sector after the collapse of two U.S. lenders earlier this month and last weekend’s forced takeover of troubled Credit Suisse by rival UBS and the writedown of some of its contingent convertible bonds.
Many worry that other nasty surprises are lurking as the series of aggressive rate hikes by the Federal Reserve over the past year ripple through the economy.
"The market is very nervous at this point and investors are acting first and looking into the nuances later," Wei Li, global chief investment strategist at fund giant BlackRock told Reuters. "It's understandable because it’s not super clear that this is definitely contained."
In recent days, investors have focused on German giant Deutsche Bank (ETR:DBKGn). The company's shares have lost more than a quarter of their value this month, including Friday’s 8.5% fall, and the cost of protecting against a default on its bonds soared, even though few put it in a class with Credit Suisse.
Tumultuous first quarter
As a tumultuous first quarter draws to a close investors are looking ahead to what Q2 might bring.
January saw the biggest rush into equities for the first month of the year on record as investors loaded up on stocks. The threat of inflation looked less severe, and the economy appeared robust.
But fast forward to the end of Q1 and a slew of crypto companies have collapsed, U.S. regional banks stocks have tanked in the wake of Silicon Valley Bank collapse and Credit Suisse has imploded – whipping market volatility into a 2008-style frenzy.
Fed Chair Jerome Powell said banking stress could trigger a credit crunch with "significant" implications for a slowing U.S. economy.
While Fed officials continue to see additional rate hikes as a strong possibility, financial markets are now favoring the likelihood of a no hike at all at the conclusion of the central bank’s next policy meeting in May.
U.S. data
It’s set to be a much quieter week on the economic calendar - the highlight will be Friday’s core PCE price index - the Fed's favored measure of inflation. It accelerated in January, adding to concerns over the prospect of a more hawkish Fed.