Dhara Ranasinghe gives us a look at what lies ahead for the markets.

This morning’s data showed that British inflation reached a record 6.2%, a 30-year-high. It is perhaps a reminder of the need for more monetary tightening to address price pressures.

The Bank of England increased rates last week in an effort to reduce inflation. However, the Bank of England softened their language regarding the necessity for further increases because households are likely to take a significant hit due the soaring cost of energy.

Some analysts believe that long-dated British gilts and government bonds will be significantly less successful than their U.S. counterparts this year, as they are more likely to underestimate inflation trends over the longer term.

Graphic: UK inflation surges again: https://fingfx.thomsonreuters.com/gfx/mkt/byvrjblobve/UKINFLATION.PNG

Britain will continue to be the market’s focus, and Rishi Sunak (Finance minister) is expected to provide a budget update at parliament in 1230 GMT. His support for households to pay their energy bills will be extended, as he is expected to do so again.

There is no doubt that central banks are stuck. With more U.S. policymakers calling for higher hikes overnight, the Federal Reserve insists it will fight inflation.

Fed funds futures show that traders anticipate more aggressive rate rises in the near future. The federal funds rate is expected to rise to the 2.25-2.5% range in the next year, which is higher than what the Fed predicted last week.

While stock markets take increasing unease with bond markets and higher rates, they continue to move in the right direction. Asia equity futures have hit new highs of three weeks, with European and U.S. stocks markets rising.

The two-year Treasury yields rose 73bps in March to their highest point since 2004.

Perhaps investors may be coming to terms that higher rates are possible because of the stability in financial markets. We will see.

Markets should be more informed by key developments on Wednesday

Biden travels to Europe, bringing more sanctions against Russia.

Japan’s 10-year yield on bonds rises to a one-month record

– Flash euro zone consumer confidence

– NATO chief Stoltenberg press conference

Russian Central Bank Vice Governor Russian Central Bank Alexey Zabotkin addresses Duma

– Fed speakers: Chairman Jerome Powell, San Francisco Fed’s Mary Daly

US New Home Sales Data, Treasury auction 20 Year.

– Emerging markets: Croatia central bank meets