Dhara Ranasinghe shows us the market day ahead.

It’s almost the end of week and it is becoming clear that central banks are increasingly taking different routes and investors may not be convinced.

Market pricing indicates that such an action might trigger a possible recession, even though the Federal Reserve started its rate-hiking cycle and announced an aggressive plan of increasing borrowing costs to control inflation.

The gap between the two- and 10-year U.S. Treasury yields has narrowed to 24 basis points. This is its lowest level since March 2020. The yield curve is close to inverting, which indicates a possible recession over the next year or two. The track record is excellent.

The Bank of England increased rates on Thursday for the third time, but it softened the language about the necessity for further hikes. This is because households are taking a big hit due to their soaring energy costs.

Christine Lagarde, chief of the European Central Bank said that the ECB will not be quick to increase rates. Markets are still pricing in at least four rate increases of 10 bps per year. The Bank of Japan maintained Friday its huge stimulus program and warned of rising risks due to the Ukraine crisis.

The dilemma for policymakers is whether to raise interest rates or tame inflation and risk the economy falling into recession. Or, if they don’t do anything to help steer it through the turmoil of war in Ukraine, and the risk that inflation will spiral,

The price of crude oil at $100 per barrel is too high for see-sawing.

However, the first Russian foreign bond default since a century appears to be avoided for now. Sources claim that some creditors were paid in dollars for Russian bonds coupons, which had fallen due earlier this week.

European stocks futures have been flattened, while U.S. options are higher, as global markets take a rest after several days worth of gains.

Markets should be more informed by Friday’s key developments

– S&P cuts Russia’s ratings to ‘CC’ on debt default risk

Euro Zone wages/employment and trade balance data

Richmond Fed President Thomas Barkin (Chicago President Charles Evans) and Federal Reserve Board President – Governor Michelle Bowman talk

– US existing home sales data

– EM central banks: Azerbaijan, Russia

DBRS review of Greek Ratings by Moody’s (NYSE)