Sujata Rao gives a look at what’s ahead for markets.

The White House stated that Russia meant to invade Ukraine on Feb 16. However, Moscow signaled it was withdrawing some of its troops at Ukraine’s border. This lifted Wall Street and encouraged a selling spree in Treasuries safe-haven and German Bunds.

Tuesday’s market gains extend into Wednesday. They rose 2.2% on Wednesday, and European bourses open lower. However, U.S. equity options show renewed caution.

There are many other ways to wage war. Ukraine blamed Russia on Tuesday’s cyber attacks. Note that Russia’s parliament requested President Putin to recognize two Moscow-backed breakaway areas in eastern Ukraine as independent.

Central banks as well as economic data are also dominating markets. Inflation readings in the UK and U.S. have disappointed those hoping for signs that it is peaking. The British Consumer Prices rose at an annual rate of nearly 30% last month. This was a slight increase from December.

It comes one day after U.S. data Tuesday revealed that core factory gates inflation — which is the cost of producers after removing food and fuel — had posted its greatest gain in a single year.

(Graphic: Inflation, https://graphics.reuters.com/USA-STOCKS/zdvxoabdlpx/inflation.png)

The possibility of aggressive, front-loaded rate increases has drastically flattened bond yields. With the gap between 2-year UK gilt yields and 10-year UK gilt yields just a hair away turning negative — the so called inversion which can often signify an economic slump

On Tuesday, the U.S. Treasury yield curve widened as receding war fear lifted yields on 10-year bonds. However, it was narrower than mid-2020 a day before. Some see the current curve as a signal that the central banks are behind the inflation battle and need to act quickly with tightening policy.

Now all eyes will be on minutes from last month’s U.S. Federal Reserve Meeting. It could be used to determine whether Fed policymakers are inclined towards an increase of half-point at March’s meeting or if they favor selling Fed bond holdings faster in order tighten financial conditions.

(Graphic: Treasury yield curve, https://fingfx.thomsonreuters.com/gfx/mkt/dwpkrjbeyvm/3M10Y%20Curve.JPG)

Markets should be more informed by key developments on Wednesday

China’s Inflation slows leaving space for policy easing

ECB’s Schnabel and Villeroy see the end to their stimulus program

NATO defense ministers gather in Brussels to discuss two-day summit

-U.S. retail sales/industrial production/inventories

U.S. Treasury’s 20-year bond auction

Minutes of Jan. 25-26 Meeting

Earnings from the United States: Kraft Heinz, Cisco (NASDAQ :), AIG (NYSE :), Nvidia(NASDAQ :), Marathon

European earnings: Ahold (Alcom), Clariant (OTC), Standard Chartered (OTC), Heineken, (OTC): Carrefour (PA:), Reckit Benckiser