Last week saw markets largely setting up for their subsequent moves, with bond, stock and crypto markets all largely trending sideways after breaking their momentum in the second half of the week. The bond markets’ continued upwards tick is placing pressure on institutions who see another round of possible sell-offs coming along. If rates continue to tick higher, we are likely to see further shocks as positions are forced to unwind, as we have seen last October when the Bank of England had to step in to secure its financial system due to a sudden spike in borrowing costs. For now however, things look largely steady across the board, with VIX readings heralding a calm before the storm as markets wait for the next sign from the central banks, data agencies and policy makers globally. The US Fed and the Bank of Japan with its new chief are the ones to watch in the coming week.

China continues to be in the spotlight, with rumours that the US is preparing sanctions on China with its allies if Chinese support for Russia deepens. While this does not mean that US will exercise such a decision, releasing public knowledge of such discussions is clearly meant to act as a warning. This is likely to increase China’s emphasis on self-sufficiency in the near future, them having observed the impact of coordinated sanctions on Russia’s economy, and wanting to draw a line in the sand. The latest China’s National People’s Congress has seen Xi further tighten his grip on the state apparatus as the technocratic and economy focused Li Keqiang exits the stage. In broad strokes, the relationship between geopolitical risk and centralization of power is clear, as is Xi’s more confrontational style compared to his predecessors. That said, the inward facing nature of this congress suggests Xi is more interested in securing his own power and sorting out the Chinese economy’s internal woes for now. Both have yet to recover from years of adhering to China’s aggressive zero-Covid policy. Consistent with this, the CCP has set for itself a growth target for this year at 5%, a tepid follow-up to last year’s 3%. To be clear, China is still an integral part of the global economy, and a slowly growing China means the world’s largest growth engine in the last few decades can no longer be relied on to bail out the rest of the world. On balance, both the SSE and Hang Seng continue to drift sideways in response as they await more substantial market policies.

In the cryptosphere, Silvergate’s woes have sent ripples through the markets, sending BTC sharply downwards on March 3, 2023. Silvergate’s finances have come under pressure despite BTC’s recent price recovery and having held on since FTX’s collapse, a sign of the stresses induced by borrowing costs marching ever higher. It remains to be seen if this was an aftershock of FTX’s collapse, another company falling to the chill we are currently experiencing, or a sign of things to come.

Events of note: Powell’s testimony to Congress on Tuesday and Wednesday. US Job data on Friday.

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