A decision on Saturday by Western nations to block some Russian banks from the SWIFT international payments network as punishment for the invasion of Ukraine looks set to trigger a fresh wave of volatility when markets open on Monday. Testimony from Federal Reserve Chair Jerome Powell may give investors an indication of how the war in Ukraine and rising energy prices have impacted the monetary policy outlook. Datawise, Friday’s U.S. employment report for February is expected to show the recovery in the labour market remains solid. Surging commodity prices are set to remain in focus, while Eurozone inflation data for February is expected to reach another record high, underlining the impact of rising energy costs. Here’s what you need to know to start your week.
Russia SWIFT Ban
Western allies announced sweeping new sanctions against Moscow on Saturday, including blocking some banks from the SWIFT international payments system. The decision will be implemented in the coming days.
The allies, who also vowed curbs on the Russian central bank to limit its ability to support the ruble, have not yet said which banks would be targeted, but a European Union diplomat said some 70% of the Russian banking market would be affected.
Investors have been fearful about moves to block Russian banks from SWIFT as this would disrupt global trade and hurt Western interests, as well as hit Russia.
One likely casualty will be the Russian ruble, investors said. Russia’s currency fell to an all-time low against the U.S. dollar in the past week, though it pared some of those losses on Friday.
“With the central bank likely to face severe constraints on currency intervention, the ruble will struggle to find a bottom,” Karl Schamotta, chief market strategist at Corpay told Reuters. “No one wants to catch a falling knife.”
Powell Testimony
With sanctions against Russia escalating and market volatility remaining at elevated levels, testimony on the economy and monetary policy by Fed Chair Jerome Powell this week will need to reassure investors that the Fed will take steps to tackle soaring inflation as the economic outlook grows more uncertain.
Powell is due to testify before the House Committee on Financial Services on Wednesday, and again before the Senate Banking Committee on Thursday.
The Fed has indicated that it is poised for an interest rate lift-off at its upcoming March meeting, to combat inflation which is running at a 40-year high. But now Fed officials must weigh the geopolitical and economic fallout from the conflict in Ukraine against mounting an aggressive attempt to curb inflation.
Russia’s invasion of Ukraine will fuel a sharper increase in the cost of living by driving up energy prices, while the extra squeeze on household spending is likely to act as a drag on the economic recovery, which has already been hit by the Omicron wave.
Nonfarm Payrolls
Economists expect Friday’s nonfarm payrolls report for February to show that the economy added 450,000 jobs with the unemployment rate expected to tick down to 3.9% and average hourly earnings forecast to rise at a 5.8% annual rate.
Ahead of the employment report, payrolls processor ADP is due to release figures on private-sector hiring on Wednesday and the Labor Department is to publish the weekly report on initial jobless claims on Thursday.
The economic calendar also features surveys of the manufacturing and service sectors for February by the Institute of Supply Management, which are likely to have rebounded as the impact of the Omicron wave on business activity subsided.
Commodity Prices
Russia’s invasion of Ukraine sent oil prices above $100 a barrel for the first time since 2014 on Thursday with Brent touching $105, before paring gains. European gas prices have also surged amid concerns over supply security.
Russia is the world’s second-largest crude producer and a major natural gas provider to Europe.
Energy traders will be awaiting details on the moves to block Russian banks from SWIFT to see if the sanctions will impact oil and gas flows, but the measures will likely discourage many buyers from purchasing Russian oil.
Meanwhile, ministers from the Organization of the Petroleum Exporting Countries (OPEC) and allies led by Russia, a grouping known as OPEC+, are to meet on Wednesday to decide whether to increase output by 400,000 bpd in April.
Eurozone CPI
The Eurozone is to release what will be closely watched data on consumer price inflation on Wednesday, which is expected to reach a fresh record high of 5.3%.
The inflation data will add to the headache facing the European Central Bank ahead of its key March meeting. The ECB has said it will conduct a comprehensive assessment of the economic outlook after Russia’s attack on Ukraine at its upcoming meeting.
Several ECB officials, including President Christine Lagarde, Vice President Luis de Guindos, Chief Economist Philip Lane, and Bundesbank President Joachim Nagel are due to speak ahead of the start of the traditional blackout period, which begins on Thursday with the publication of the minutes of the bank’s most recent meeting.
