Energy Prices Drive Hawkish Central Bank Stance

Provisional PMI surveys for March represent the first economic indicators covering the post-conflict period, a point highlighted by Deutsche Bank economists. Inflation data from the U.K., Japan, and Australia are also critical, given concerns about prolonged high energy prices.

The U.S. Federal Reserve held rates, acknowledging inflation risks, while the European Central Bank signaled readiness to raise rates if energy prices fuel inflation, with LSEG data showing money markets fully price a June hike. The Bank of England also suggests potential rate hikes, with LSEG data indicating money markets price three U.K. rate increases this year.

Mexico's central bank is expected to cut its main policy rate by 25 basis points to 6.75%, according to HSBC economists, but will likely offer cautious guidance due to energy price shocks. Norway's Norges Bank is expected to hold rates at 4% but temper its easing bias, as per HSBC economists.

China's policy priorities have shifted towards financial stability and energy security, with the People's Bank of China emphasizing stable operations across equity, bond, and forex markets, as stated by Wei Li, Head of Multi-Asset Investments at BNP Paribas Securities (China). Developments in the Middle East and energy price movements will remain key investor concerns.

Bond auctions across the U.S., Europe, and Japan will also be closely watched, particularly given recent jumps in U.K. gilt yields and the high yields offered by new 40-year Japanese government bonds.