Sujata Rao gives a look at tomorrow’s markets

One month has passed since Russian troops invaded Ukraine. The West was forced to respond with unexpectedly harsh sanctions. The Russian President Vladimir Putin is now requesting that “unfriendly nations” pay in rubles for their energy imports.

Putin also demanded that all contracts should be swapped within one week.

This demand has many ramifications. It’s not clear if Western companies, who are wary about trading Russian assets will be willing to agree. The announcement quickly sent European gas prices up. In the meantime, oil prices in Europe have risen to $120 per barrel after a Kazakh pipeline rupture.

All of this adds to the inflation pressures. JPMorgan (NYSE) has just released its latest estimates that global inflation will reach 6.3% in the quarter. This is the largest increase in a quarter-century. Even the most dovish U.S. policymakers are now willing to support higher interest rates in May, thanks to more aggressive central bank policies.

As U.S. bond yield curves indicate, recession fears are increasing.

Graphic: U.S. bond yield curve: https://fingfx.thomsonreuters.com/gfx/mkt/gdpzyjykjvw/US2203.PNG

The war will have a significant impact on business sentiment as we get advance readings from March Purchasing Managers Indexes.

The Japanese PMIs indicate that business optimism is significantly lower, but Europe could fare worse. Wednesday data shows consumer confidence plummeting from March 2020 to May 2020.

These and other topics will all be addressed at the NATO summit in Brussels. Joe Biden, President of the USA will attend. You can expect more sanctions to Russia.

After a three-1/2 week shutdown in Moscow, equity trading was reopened. However, it is only on a temporary basis. Currency traders are still waiting to see if European buyers will be able to swing roubles for gas, which could lift the Russian currency by 8% Wednesday.

Graphic: Who purchases Russia’s oil & gas? Which country buys Russia’s oil or gas?: https://graphics.reuters.com/GLOBAL-OIL/RUSSIA/myvmnxxolpr/chart.png

The following are key developments which should give direction to the markets on Thursday

-ECB board member Frank Elderson speaks

Chicago Fed president Charles Evans, Minneapolis Fed’s Neel Kashkari and Governor Christopher Waller. Atlanta Fed’s Bostic

Global rate-hike trend to be resisted by Switzerland

Norway to increase rates 25 bps

U.S. Weekly Jobless Claims/final Core PCE/durable Goods

-U.S. 10-year TIPS auction

– Mexico to raise rates by 50 bps, South Africa to deliver 25 bps rise