Noreen Burkhart

Investing.com — The war in Ukraine will continue to dominate market sentiment in the week ahead and last week’s huge rally in commodity prices looks set to continue, adding to already high inflation. Inflation numbers from the United States for February are being closely monitored ahead of an imminent Federal Reserve rate increase on March 16. The European Central Bank is to hold its first meeting since Russia’s invasion of Ukraine, while data out of the U.K. and Canada is expected to underline expectations for further interest rate hikes. Here’s what you need to know to start your week.

1. Turbulence on the market

The outlook for U.S. stocks will be clouded by geopolitical uncertainties. However, concerns about soaring inflation, higher commodity prices and sanctions against Russia may reduce the Fed’s expectations of how aggressively they will increase rates.

The stock market was buoyed in part by the expectation of a more aggressive Fed and lower aggregate yields. “The threat of higher interest rate has diminished somewhat,” Brad Neuman of Alger’s market strategy department told Reuters.

Neuman stated that although the Fed may be more aggressive after Russia invades Ukraine, the Fed’s problem has not diminished. It has actually been worsened.”

The Fed could raise interest rates aggressively due to rising commodity prices.

Fed Chair Jerome Powell stated last week that he supports a 25 basis-point increase in the interest rate at the central bank’s meeting next week. However, he added that he was “prepared to move further aggressively” later on if inflation doesn’t subside as rapidly as anticipated.

2. CPI in the United States

The U.S. Inflation Report will be available on Thursday. Economists expect an increase in year-on–year inflation after January’s 7.5% peak.

Although the conflict in Ukraine has dampened expectations of Fed rate increases, a higher than expected CPI number may fuel hopes for quicker action. Risk assets that are already reeling from uncertainty as a result of the Ukraine conflict would be hurt.

Investors will be able to see how the University of Michigan Friday data provides insight on how families are doing in light of rising spending power and price pressures.

Fed officials are not scheduled to appear during the week because the central bank is in its pre-meeting period.

3. Stock market rally

According to the White House, the Biden administration will look at reducing Russian oil imports. This comes as the Senate moves quickly on a bill which would completely ban Russian energy imports.

The White House could use legislation to ban imports to help reduce inflation, which is already high for decades.

Giovanni Staunovo from UBS said that although U.S. oil imports are not large in a global perspective, they were still significant. He added that crude oil prices rose Friday night because some market participants may be worried that others might take that risk.

Last week saw oil prices post their biggest weekly gains since mid 2020, when the benchmark rose 21% while the gain was 26%.

Oil prices could rise in the next week if there are delays to Iran’s nuclear agreement being concluded.

Besides oil, prices of grains and metals have also soared to multi-year highs since Russia’s invasion of Ukraine as Western sanctions on Moscow disrupted exports from major producer Russia and threatened a growing global supply crunch.

4. ECB meeting

The ECB has been laying the groundwork for its exit from ultra-easy policies, but Russia’s invasion of Ukraine has thrown its plans into disarray.

Eurozone is running at a record high 5.8%, almost three times the ECB’s 2% target and the war, by sparking a spike in energy prices, is causing upward pressure on inflation. It is also affecting global economic growth prospects.

Expect the on Thursday to continue to follow its Pandemic Emergency Purchase Program plans (PEPP) to cease asset purchases and double its asset buying through its Asset Purchase Program, which is longer-running, in the second quarter.

Christine Lagarde (ECB President) will be holding a post-policy conference at 8:30 AM ET (0.30 GMT). It is possible she will be challenged about plans to raise rates, as last month her pledge not to increase rates in the new year was broken.

5. U.K. GDP, Canada jobs data

On Friday, the U.K. will release January GDP data. This is expected to show a slight rebound after December’s contraction.

The Bank of England is expected to increase rates to 0.5% from their level of 0.75% before the pandemic, even though the Ukraine war has ended. However, the Bank of England’s interest rate hikes are still anticipated by financial markets amid increasing price pressures.

Canada will release its February Report on Friday after the Bank of Canada raised rates last week for the first-time in more than three years.

Tiff Macklem (BOC Governor) did not rule out the possibility of a 50-basis-point rate rise in future to reduce inflation.

Russia’s February inflation data will be released on Wednesday. CPI should rise in response to Western sanctions.

This report was submitted by Reuters