Of course the main focus for markets will continue to be the war in Ukraine. The risk of Nato being dragged into the war has risen after Russian warnings that military conveys to Ukraine will be considered legitimate targets and a military training facility near Poland’s border was attacked. Russia has reportedly intensified its attacks on key Ukrainian cities while peace talks are reportedly making some progress though nothing concrete has yet been achieved. The US and China will also gold high-level talks in Rome today while there has been no traction towards a no-fly zone over Ukraine.
Illiquidity and volatility are likely to continue to characterise market activity in the days ahead while risks of a Russian default grow. Stagflation risks will likely continue to sound louder in the weeks ahead too, leaving central banks in a bind. As it was, economic growth was slowing and inflation was highly elevated ahead of the crisis in Ukraine. Now it’s going to look a whole lot worse, implying a still tense environment for risk assets. The US dollar looks firm going into this week against this background.
This week’s key central bank events include Bank Indonesia (Tue), Federal Reserve FOMC decision (Wed), Bank of England (Thu), European Central Bank (ECB) Watchers Conference (Thu), CBC in Taiwan, CBRT in Turkey (Thu), BCB in Brazil, Bank of Japan (Fri), and CBR (Fri) in Russia. Most focus will of course be on the Fed where a 25 basis points hike in interest rates is highly likely. Any clues to the pace of tightening and details of quantitative tightening will also be in focus. Similarly, the BoE is likely to hike by 25bp. The ECB Conference will be watched for discussion on the speed of policy withdrawal.
Meanwhile, the BoJ is likely to downgrade its growth outlook while no change in policy is expected in Indonesia, Turkey and Russia. In contrast, Brazil is expected to hike rates by 100bp. There will also be attention on China’s 1 year medium term lending facility where a cut amid slowing activity, would presage a potential easing in the policy Loan Prime Rate (LPR) next week. Data in focus will be China activity data (Tue) where a further slowing in both industrial production and retail sales is likely while US February retail sales (Wed) are likely to gain momentum. Last but not least, Australian jobs data (Thu) are likely to reveal a strong print for February.