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On Wednesday, two central banks from countries on opposite sides of the Pacific Ocean will meet and may announce the first ever half-point rise in interest rates in any country.

U.S. Fed is expected to do the same in May. March inflation data will be provided to them. Meanwhile, the ECB, which faces pressure from its hawkish elements to begin tightening its policy on Thursday, will receive information about their March inflation.

Europe is now aware of the possibility that France will lose its election.

This is your market week in Singapore from Tom Westbrook, Ira Iosebashvili, and David Henry in New York. Sujata Ranasinghe and Dhara Ranasinghe are in London.

1/MADAME LA PRINCIPALE

Marine Le Pen is a far-right French politician who caused panic during the 2017 Presidential Elections. Markets are scared and have begun to resurgence.

Le Pen has closed the gap to incumbent Emmanuel Macron with the scheduled first round of presidential election voting on Sunday.

Macron still is expected to win the presidency but it’s possible that he loses. Le Pen’s win could undermine European cohesion. France would be hit hard by her tax-cutting and big-spending agenda.

Premium investors are now willing to pay more for French debt than Germany. However, shares in the companies that Le Pen has targeted for nationalisation have declined.

Le Pen is not advocating abandoning the euro like in 2017. A strong Sunday showing will bring market volatility before, and perhaps after, the April 24-decider.

FRANKFURT: 2/HAWKS

At 7.5% inflation in the euro zone, Thursday’s European Central Bank meeting is expected to see the European Central Bank unleash its hawks.

They are becoming more vocal while the markets have increased their expectations for a July rate hike, as they’ve increased their odds since the March meeting.

Philip Lane, the chief economist of the ECB, warns against reacting too quickly to price rises caused by energy. The Ukraine war has a negative impact on both the economy as well as consumer confidence.

It knows the cost of making a policy error. The ECB has in the past raised interest rates only to quickly reverse course. But inflation is not showing any signs of peaking or returning to its 2% target. The cry of the hawks may grow louder.

3. BIGGER GUNS AND BIGGER RATE HITES

    Canada and New Zealand appear poised for their biggest interest rate hikes in 20 years, underscoring the worldwide scramble to contain inflation.  

    Both banks meet on Wednesday. Swaps are subject to a greater than 90% chance of swaps experiencing a 50 basis point hike by the Reserve Bank of New Zealand. There is a higher-than-80% chance that the Bank of Canada will follow suit.

A 50-bps increase in Canadian inflation may be possible for June, with the target being reached by 2024. New Zealand reported a 25-bps increase in February, its third such rise and indicated the possibility for larger increases.

These will be the largest G10 increases this cycle. The Federal Reserve has been forecasting that rates will rise 50 bps by May.

4. PRICE WAR

Minutes from March’s Fed policy meeting show that the Fed is likely to increase rates and have an aggressive balance sheets runoff in the coming months, as it fights inflation. .

This puts Wednesday’s inflation data in the spotlight. This February’s 7.9% inflation print marked the highest annual growth in over 40 years. Economists polled for Reuters predicted that consumer prices rose 8.3% in March as a result. This was due to the fact that commodity prices were spiralling higher after the Ukraine-Russia War.

Americans are digging deeper to find rent, fuel and food. Wage gains are also eroding. The inflation-adjusted average hourly earning fell 2.6% from a year ago in February. An inflation print that is substantial will support the need for tighter policy.

5/BANKS TO MAKE THE TEST

Investors will have the opportunity to evaluate balance sheet resilience and cost pressures for companies as well as share buyback and purchase plans, given rising bond yields, labor shortages, and sky-high commodities prices that are threatening stock markets.

According to Refinitiv IIBES, overall earnings growth will be 6.8% for the January-March quarter compared with the 53% rebound seen last year from the COVID-time doldrums.

JPMorgan reports Wednesday on big banks, and is followed by NYSE: a day later. Citigroup (NYSE:), Wells Fargo (NYSE:), Goldman Sachs(NYSE:) Morgan Stanley (NYSE:).

Bank shares have fared badly this year, with 11% losses, versus the S&P 500’s 6%

Projections show that net income of six major lenders will decline 35% from a year prior. Even though investment bank revenues have likely declined after the Russian invasion, certain banks need to cover Russia-related losses.

As a result of Q1 losses in bond portfolios, banks might consider reducing share buybacks. [L2N2W31XD]