Central banks flying into storm clouds

A look at the day ahead in markets from Sujata Rao

After a hectic period, traders (and reporters) will be looking forward to the long Easter weekend but they must first get through what promises to be an eventful Thursday.

Already in Asia, the normally staid Bank of Korea delivered a surprise rate hike — despite not having a governor in place — and warned inflation could top 4%, up from its February forecast of 3.1%.

It also cut economic growth forecasts, part of a pattern where most central banks are acting against inflation, even at the cost of growth. Canada and New Zealand on Wednesday delivered half-point rate rises, while later on Thursday, the European Central Bank may set out a date to end bond purchases, even as high energy prices threaten recession.

Despite data pointing to soaring inflation, bond yields have taken a tumble in recent days on fear that central banks’ inflation battle will drag economies into a slowdown, or even recession.

Markets were unnerved by Wednesday’s downbeat message from JPMorgan’s straight-talking CEO Jamie Dimon about “storm clouds on the horizon” for the economy. His bank also posted a 42% profit slump in the first quarter.

Q1 earnings were always going to be a bit of a let-down after the post-COVID bounceback in early-2020, but JPM’s 30%-70% fee declines from dealmaking, equity and investment banking still had the capacity to shock, as did the $1 billion it set aside against loan losses.

With share buybacks now in question, JPM shares fell 3%.

Investors clearly fear similar messages from other banks reporting on Thursday. Watch Goldman Sachs, tipped to see a 32% revenue decline in Q1. Given Goldman has beaten forecasts in each one of the past eight quarters, anything worse could weigh heavily on shares already down 16% this year.

So, want to see where the profits are? The world’s largest chipmaker, Taiwan Semiconductor posted a 45% jump in Q1 net profit, benefiting from the global chip crunch.

Meanwhile, falling Treasury yields are lifting stock markets; European and U.S. equities look set to follow Asia higher. Key developments that should provide more direction to markets on Thursday: -Singapore tightens monetary policy for third time in six months – Fed speakers: Philadelphia President Patrick Harker, Cleveland President Loretta Mester -U.S. retail sales March/weekly jobless/University of Michigan inflation expectations -Turkey to hold rates steady despite 61% inflation -Earnings: Bancorp, Goldman Sachs, Morgan Stanley, State street, Wells Fargo, Citi

(Reporting by Sujata Rao; editing by Dhara Ranasinghe)