The war in Ukraine will continue to dominate market sentiment in the week ahead and last week’s huge rally in commodity prices looks set to continue, adding to already high inflation. U.S. inflation numbers for February will be closely watched ahead of a looming rate hike by the Federal Reserve on March 16. The European Central Bank is to hold its first meeting since Russia’s invasion of Ukraine, while data out of the U.K. and Canada is expected to underline expectations for further interest rate hikes. Here’s what you need to know to start your week.
Market Turbulence
Geopolitical worries will continue to cloud the outlook for U.S. equities, even as concerns over soaring inflation and higher commodity prices, stoked by sanctions against Russia, curb expectations for how aggressively the Fed will hike rates.
“The stock market has been buoyed by expectations for a less aggressive Fed and lower yields in aggregate. The threat of higher interest rates has receded somewhat,” Brad Neuman, director of the market strategy at Alger told Reuters.
“The Fed will be less aggressive now that Russia has invaded Ukraine in the near term, but the problem that the Fed faces has not been ameliorated,” Neuman said. “In fact, it has been exacerbated.”
Soaring commodity prices have raised fears of even greater inflation, which could prompt the Fed to hike interest rates more aggressively.
Fed Chair Jerome Powell said last week he would support a 25-basis-point interest rate increase at the central bank’s upcoming meeting next week but added that he would be “prepared to move more aggressively” later if inflation does not subside as quickly as expected.
U.S. CPI
Data on Thursday is expected to show U.S. inflation surged again last month, with economists forecasting an increase of 7.9% year-on-year, after January’s four-decade high of 7.5%.
While the war in Ukraine has tempered expectations for aggressive Fed rate hikes a higher-than-expected CPI number could fuel expectations for faster action. That would hurt risk assets, already rattled by Ukraine-linked uncertainty.
Consumer sentiment data from the University of Michigan on Friday will give investors an insight into how households are faring as rising price pressures erode spending power.
There are no scheduled appearances by Fed officials during the week as the central bank enters its traditional pre-meeting blackout period.
Commodity Rally
The Biden administration is looking at cutting imports of Russian oil, the White House said on Friday, as the Senate fast-tracks a bill that would ban Russian energy imports entirely.
The White House could rely on the legislation to ban imports, a move that would help share the blame for any price spikes that would add to already decades-high inflation.
“While U.S. oil imports from Russia are small in a global context,” UBS analyst Giovanni Staunovo told Reuters, crude prices rallied late Friday because “some market participants might be concerned that other countries might follow that step.”
Oil prices posted their largest weekly gains since mid-2020 last week, with the Brent benchmark up 21% and U.S. crude gaining 26%.
Delays to the conclusion of talks on Iran’s nuclear deal could also push oil prices higher in the coming week.
Besides oil, prices of grains and metals have also soared to multi-year highs since Russia’s invasion of Ukraine as Western sanctions on Moscow disrupted exports from major producer Russia and threatened a growing global supply crunch.
ECB Meeting
The ECB has been laying the groundwork for its exit from ultra-easy policies, but Russia’s invasion of Ukraine has thrown its plans into disarray.
Eurozone inflation is running at a record high of 5.8%, almost three times the ECB’s 2% target and the war, by sparking a spike in energy prices, is causing upward pressure on inflation. At the same time, it is clouding the outlook for global economic growth.
The ECB on Thursday is expected to stick to its plans to end asset purchases under its Pandemic Emergency Purchase Program (PEPP), while doubling asset-buying under its longer running Asset Purchase Program in the second quarter.
ECB President Christine Lagarde will hold a post-policy meeting press conference at 8:30 AM ET (1.30 GMT). She may be pressed on plans for rate hikes, having last month walked back on a pledge not to lift rates this year.
U.K. GDP, Canada Jobs Data
The U.K. is to release GDP data for January on Friday, which is expected to point to a modest rebound of 0.2% after contracting by the same amount in December.
Despite the war in Ukraine, financial markets still expect the Bank of England to raise rates from 0.5% to their pre-pandemic level of 0.75% on March 17 amid rising price pressures.
Canada is to release its February jobs report on Friday after the Bank of Canada hiked rates for the first time in over three years last week.
BOC Governor Tiff Macklem did not rule out a rare 50-basis-point rate hike in the future if needed to curb soaring inflation.
Meanwhile, Russia is to release February inflation data on Wednesday, with CPI expected to tick up to 8.8% as the impact of Western sanctions begins to take effect.
