Week Ahead: 28 February 2022

It has been one hell of a week for volatility as investors responded to events unfolding in Ukraine and the response from the West in terms of sanctions on Russia. Stocks dropped on Monday, rallied on Tuesday, plunged again on Wednesday and then surged sharply higher on Thursday, before extending those gains on Friday. The end result? A roller-coaster ride to nowhere: at the time of writing on Friday afternoon, all major US indices were trading around the flat line. Crude oil also behaved in a similar fashion after surging through $100 before sliding back below that hurdle later in the week. Safe-have gold got very close to $2K, before sliding at the back end of the week as investors bought equities.

Ukraine: Glimmer of hope, but situation perilous

As we transition to the new week, the situation in Ukraine and war of words between Russia and the West will continue to dictate sentiment in the short term, lessening the impact of the upcoming economic data releases (see below).  Judging by the big recovery in risk assets at the back end of the week, investor sentiment appears much calmer about the situation. There is hope for some sort of peace after Kremlin said Putin had agreed to organize negotiations with Ukraine’s Zelensky. But the situation remains perilous and there are no guarantees.

Away from geopolitics: Fed’s policy response to inflation

Meanwhile, investors’ attention may slowly turn away from geopolitics as we approach March, which is going to be another significant month in the markets as the Fed will finally hike interest rates, potentially starting a major tightening cycle this year as it tries to tackle surging inflationary pressures. St Louis Fed President James Bullard has again repeated that he supports 100 basis points rise by the end of June, adding that there is limited connection between events unfolding in Ukraine and the US economy, where inflation is getting very hot. The latest data continue to point to higher prices. The Fed’s favourite inflation measure came out ahead of expectations on Friday as the core PCE price index rose to its highest level since 1982, well before I was born. It climbed to 5.2% year-over-year in January, up from 4.9% in December.

Data highlights for the week ahead

In the week ahead, we will get one last snapshot of the US non-farm jobs report and wages, while the latest CPI measure of inflation will come out the following week, before the FOMC meets on March 16. These figures might be deciding factor between a 25- or 50-basis-point rate hike. Here is what’s on the agenda in the week ahead:

Monday

After what has been a very volatile month, window dressing by fund managers in the first day of the week, and further Ukraine-related volatility, could see the markets move sharply.

Tuesday

Due to the prolonged lockdowns in Australia and somewhat subdued 2.3% wage growth in the last quarter, the RBA is likely to keep policy unchanged 0.1% at this meeting. The focus will be on the language it uses to prepare the market for a hike around August. If it indicates an earlier rate rise, then the Aussie could rally.

Wednesday

Unlike the RBA, the BOC is expected to hike by 25 basis points, especially in light of the upsurge in oil prices and the improvement in Canadian economic data of late.

Eurozone CPI is expected to hit a fresh record high of 5.3% and this will surely put pressure on the ECB to tighten its policy sooner. Will the euro finally stage a rally?

Thursday