Geoffrey Smith 

Investing.com — As markets adjust to the new U.S. interest rate path, the dollar stabilized. As the Senate considers expanding sanctions, tensions continue to rise with Russia. As OPEC+ struggles to keep pace with growing global demand, oil prices are continuing to rise. Italian assets rise as Mario Draghi gets ready to be elected Prime Minister for a full term. What you need to know on financial markets Monday, 31 January. 

1. The yield curve flattens and markets stay steady

While the dollar remained steady, global markets were mixed. As January was winding down, there was growing concern that the market had adjusted to U.S. interest rate expectations.

At 6:45 AM ET (845 GMT) the points were down by 172 or 0.5% while they were down 0.2%. But, they were up 0.3%. Two-year Treasury yields are now at around 1.2% after rising almost half a point from the start of this year. After rising to 1.87% in May, the yield on the 10-year Treasury has fallen back to 1.79%. It suggests that there is some hope that inflation will be controlled by the Fed in the medium term.

Stocks likely to be in focus later include Citrix, after a report suggesting that the price of the Elliott/Vista-backed buyout for the remote access software stock is likely to be below Friday’s close, and U.K. cell carrier Vodafone (NASDAQ:), which reportedly has a new activist shareholder to deal with in the form of Swedish-based Cevian.

L3Harris (NASDAQ:), and NXP, which follows the bell, are due to report earnings shortly.

2. Ukraine tensions explode

There was no indication that tensions over Russia or its intentions for Ukraine would be deescalated this weekend.

The U.S. Senate is reportedly close to preparing sanctions that would further restrict Russian banks’ access to international markets and limit Russia’s ability to borrow in dollars. However, talk of the country’s banks being excluded from the SWIFT financial messaging system – which would restrict but not end Russian banks’ access to international capital markets – has again died down, amid concerns that it would also disrupt global energy markets.

Despite promises of a crackdown following the invasion in Crimea 2014, the U.K. allowed Russian money to flow freely through its financial systems despite its promise to clamp down. It has since also stated that it will tighten its regulations.

3. Mario, carry on!

Italian bonds and stocks rallied after news that 83 year-old Sergio Mattarella will continue for now as the country’s president, after a series of votes by parliamentarians last week failed to agree on any alternative candidate.

Mario Draghi (ex-CEB President) will remain in charge of the government and may continue serving a term until next year. That in turn means that Italy is likely to stay on a relatively predictable economic and political path for this year, allowing it to receive tens of billions of euros in payments from the EU’s groundbreaking Next Generation program, which goes further than any previous mechanism for fiscal transfers between various parts of the bloc.

In three weeks, the spread between German and Italian 10-year bond yields fell to their lowest point. This is an indicator of Eurozone financial stress.

Eurozone GDP stagnates; CPI peak could have passed

Unspectacular results were recorded for the Eurozone’s fourth quarter. This was due to supply chain problems in Germany that offset a stronger-than-expected recovery in France, Italy, and Spain.  The Eurozone’s GDP rose 0.3% in the fourth quarter as expected after Italy posted a 0.6% rise and Austria reported 2.2% because of an earlier and more severe lockdown.

Preliminary consumer inflation figures in Germany will show a decrease for the first time since the VAT increase that was implemented at the beginning of last year is removed from the calculations.  Spanish consumer prices dropped 0.5% in the last month. This brings the annual rate to 6.0% down from 6.5%.

5. Oil prices rise on concerns about OPEC+’s impotence

Crude oil prices resumed their upward march ahead of a key meeting by the world’s largest exporters later in the week.

Analysts are concerned about Russian energy export stability in case of conflict between Russia and Ukraine. They also worry about the inability of OPEC to deliver on its stated policy of gradual production rises. Today, the OPEC+ bloc produces more than 600,000 barrels per day than it could have anticipated when it began this journey last year.

According to the United Arab Emirates, it was forced earlier in the night to stop another Iranian-backed missile strike on Yemen.

Futures rose 0.6% to $87.30 per barrel by 6:40 ET (1140 GMT) while futures rose 0.6% to $89.03 per barrel.