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

Markets would be accustomed to the hawkish rhetoric of major central banks. It’s not.

Jerome Powell, Federal Reserve Chairman, said that an increase of half-point in the Fed’s rate was possible at their May meeting. However, other Fed officials suggested the possibility for 75 basis point moves.

Catherine Mann, Bank of England, stated that borrowing costs will likely rise while hawkish comments from members of the European Central Bank’s Governing Council shifted again the dial for bond markets.

The money markets price in a Fed move of half-point in May, and around 80 bps total tightening by the ECB over the year.

What does this mean for markets? The U.S., European, and London bond yields have reached new levels as London trading begins. Equity futures indicate weakness in Europe and Wall Street following a Asia stock market crash.

The question is whether an increasingly aggressive central bank stance causes a severe economic contraction or slowdown.

The flash purchasing manager’s indexes (PMIs) of global buyers were released on Friday. They may provide clues as they are resilient to new threats and have shown resilience in the face war in Ukraine.

In the face of rising inflation, rate-setters may opt to be pragmatic and not regret their decisions. This is a term used last week by the Reserve Bank of New Zealand after raising rates aggressively by 50 basis points.

It’s much better to fight inflation early with large rate increases and to risk a little recession than to raise rates later and face a larger recession. The time will tell.

Resilient PMIs to be put to the test https://fingfx.thomsonreuters.com/gfx/mkt/gdvzyawdwpw/PMIS2204.PNG

The following are key developments which should give more direction to the markets Friday

Japan’s March consumer prices increase at the fastest rate in more than 2 years

– S&P Global (NYSE:) flash PMIs everywhere

France’s Macron retains the poll lead following TV clash

– UK retail sales tumble as inflation jump hits demand

UK PM Johnson to be investigated for contempt, reigniting doubts about his leadership abilities

International Monetary Fund and World Bank meet

– European Central Bank President Christine Lagarde speaks

European earnings: ASML and EssilorLuxotica Renault (EPA:), SAP, Volvo,

– Schlumberger (NYSE:), American Express (NYSE:), Newmont Mining (NYSE:), Verizon (NYSE:), Kimberley Clark