Markets are staging a cautious recovery after a three-day bout of selling drove equity indices into the red and triggered some of the biggest daily interest rate declines on record. US regional bank stocks appear destined for a more constructive open, with yesterday’s indiscriminate selling giving way to a more nuanced pickup in well-capitalized names. Treasury yields are climbing off the floor, and the dollar is rising against most its major counterparts.

But damage has been done. Rate expectations have been reset lower across the global economy, financial conditions have tightened sharply, and the episode has likely inflicted a psychological blow on businesses and consumers worldwide.

We’re still expecting a 25 basis point hike at next week’s Fed meeting. From what we can see, Silicon Valley Bank’s demise was highly idiosyncratic and is unlikely to signal weakness in the wider banking system. Actions from authorities have made a financial crisis less likely, not more. Lending activity may slow, but is And the Bank of England, which managed to keep hiking through last autumn’s pensions blowup, provides an example of a central bank that kept its macroprudential and monetary policy objectives separate.

This view is, of course, growing more lonely. A number of major banks have suggested the Fed’s tightening cycle is now at an end, and at least one—Nomura—is looking for a cut at the meeting. If this morning’s inflation data comes in below expectations and a sense of pessimism continues to spread through markets, the Fed could decide that the balance of risks argues for a more cautious approach.

Economists think the year-over-year change in headline consumer prices cooled to 6.0 percent in February, with the core measure slowing to 5.5 percent from 5.6 in the prior month.

The yen is weaker after the ten-year government bond yield fell below 0.25 percent, fully unwinding gains achieved since the central bank lifted its rate cap in December. Safe haven demand is eroding, and markets are awaiting the outcome of annual “shunto” wage negotiations between the government, businesses and union leaders, which are expected to come to a resolution tomorrow and could help determine the inflation outlook.

China will publish retail sales, industrial output and fixed-asset investment numbers for January and February this evening. Commodities could react if the prints come in stronger than expected, but with a zero-covid policy rollback and the Lunar holiday landing within the sample period, we suspect the data will be badly distorted.