War and Peace By Reuters

© . FILE PHOTO – Traders work the floor of the New York Stock Exchange (NYSE) in New York City, US, Feb. 15, 2022. REUTERS/Brendan McDermid () – Tensions over Ukraine will keep markets on edge this week as US consumer data and results from major US retailers will provide new insights into shoppers’ minds, as well as inflation and supply chains. PMI data may show how major economies are doing as governments roll back on COVID restrictions, while flattening yield curves demand attention as the US Federal Reserve’s main March meeting draws near. Meanwhile, by how much will New Zealand’s central bank raise interest rates? This is your week ahead at the markets of Wayne Cole in Sydney, Ira Iosebashvili in New York, Sujata Rao, Dhara Ranasinghe and Karin Strohecker in London. 1/DESCRIPTION AND TALK Tensions over Ukraine between Moscow and Washington and other western capitals have dominated markets in recent days, with little sign of abating as the major western powers warn of a possible imminent Russian invasion. Diplomatic efforts are continuing at full speed, with US Secretary of State Antony Blinken accepting an invitation late in the week to meet with Russian Foreign Minister Sergei Lavrov – provided Russia does not invade Ukraine. Ukraine will also take center stage as some world leaders gather in Germany this weekend for the annual security conference in Munich. Meanwhile, pressure on the ground in Ukraine is mounting: Kiev government forces and Russian-backed rebels in the east of the country exchanged fresh allegations of shelling and other ceasefire violations, following artillery and mortar attacks on Thursday . European dependence on Russian gas – https://fingfx.thomsonreuters.com/gfx/mkt/myvmnjleqpr/Pasted%20image%201645009642003.png 2/A TRUST GAME After overwhelming retail sales, US consumers are back in focus as the markets parse consumer confidence and look at a torrent of revenue from major retailers to see how rising inflation is affecting shoppers. Consumer confidence measurements in January showed that short-term growth expectations are fading, which some economists have seen as a warning sign against the backdrop of a stock market downturn. Shares have remained volatile in February as investors process an aggressive shift from the Fed and concerns about a possible escalation between Russia and Ukraine. Retailers’ revenues will contribute to the mix: Home Depot (NYSE:), Lowe’s (NYSE:), Macy’s (NYSE:) and Footlocker, among others, are scheduled to report fourth quarter results. In addition to the results, investors will listen to how companies are coping with the supply chain crisis and their view of inflation. US Consumer Confidence – https://fingfx.thomsonreuters.com/gfx/mkt/byvrjxwxqve/Pasted%20image%201644960835162.png 3/US ISSUE GROWTHANG Flattening bond yield curves — as the gap between short-term and long-term borrowing costs narrows – – are attracting attention nowadays. The US 2-year/10-year curve has recently fallen below 40 basis points, the flattest since mid-2020. Canada’s curve has narrowed to 22 bps, and the UK’s curve is a sideburn without a whisker. An inversion, when short-term interest rates rise above the longer range, is often – but not always – followed by an economic recession. Bond traders seem to believe that central bankers, who previously allowed inflation to run high, will now rush in with aggressive rate hikes all over again, potentially triggering a recession. A BofA survey found that only 12% of investors expect an economic recession and most remain overweight in equities. But if inflation continues to surprise positively, those bond yield curves could continue their path to inversion. Yield Curve US 2-5 – https://fingfx.thomsonreuters.com/gfx/mkt/klvykmrnavg/US25%20Curve.JPG 4/ RATE INCREASE – BUT BY HOW MUCH? The Reserve Bank of New Zealand (RBNZ) is expected to raise the 0.75% spot rate for the third time in five months when policymakers meet on Wednesday. The only question is whether Governor Adrian Orr and others will stick to quarter-point moves or raise the ante to 50 basis points, after recent data showed inflation and labor markets are hot. Policymakers have long expressed a preference for gradual moves, but swaps still imply a one in three chance of 50 basis points. The RBNZ is also likely to expect a rise at each meeting this year, perhaps reaching a 3.0% eventual peak. Pressure mounts on RBNZ – https://fingfx.thomsonreuters.com/gfx/mkt/xmvjojmxrpr/Pasted%20image%201645087335864.png 5/ LIFE WITH COVID When the Omicron-COVID variant surged in late 2021, many major economies opted sure not to go back to the strictest lockdown restrictions. With the number of cases declining in Europe, governments seem more confident in removing more measures. Germany will soon announce an easing of restrictions; those who test positive for COVID in Britain will no longer have to self-isolate from the end of February. February’s flash PMIs due in the coming days – eurozone and UK out Monday – could show how such developments are boosting economic activity. Sentiment in Germany has already received a boost and further positive news could encourage central banks to quickly ease post-pandemic stimulus. Still, policymakers will look to see how other governments fare. Hong Kong and mainland China, for example, want to contain the virus — a strategy that could have global repercussions if supply chains come under pressure. Euro area COVID cases and PMIs – https://fingfx.thomsonreuters.com/gfx/mkt/zgvomjxwnvd/Theme1502.PNG

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