OPEC+, EU inflation and US jobs data in the spotlight ahead of Powell's speech

On Wednesday, financial markets are facing a busy day. With crude oil prices skyrocketing in all benchmarks, Germany's 10-year yields are back in negative territory this morning. The move echoes other major bond markets movements, which can be indicative of investors' mindset shift. Brent hit 110 dollars per barrel. European inflation, the British budget, rising interest rates in Canada, the OPEC Plus meeting, and US labour market data are at the forefront of today's most significant events while the biggest attack on Europe since World War II continues to intensify. Meanwhile, the testimony of Federal Reserve Chairman Powell is in the spotlight.

A new cycle of tightening monetary policy

March marks the beginning of a new monetary policy cycle with a contractionary approach. Canada and the United States will begin raising interest rates later this month after the Bank of England raised interest rates three times in a row. The Bank of Canada will decide today to raise 25 basis points and is expected to raise interest rates from 0.25% to 0.5%. Likewise, the Federal Reserve is likely to key in raising interest rates at its next meeting this month. We will probably see a 25-point rise in interest rates at all monthly meetings of the Federal Reserve in 2022.

Ukraine crisis and ECB monetary policies

The extent to which monetary policy may be affected by the Ukraine crisis is an important question. Ongoing war for the world means rising energy prices. An upsurge in energy prices means an elevation in production costs. And with inflation at a record high over the past four decades, rising production costs could keep prices going up. Rates hikes may curb the inflation caused by the expansion in the money supply during the pandemic. Still, it certainly cannot offset the rise in prices caused by the decline in energy supply. As a result, what businesses in Europe will be facing is probably the higher cost of borrowing money to run businesses whose costs have gone up under the new circumstances. In other words, the reduction of corporate profits lowers the return on investment and thus leads to a reduction in the growth rate of investment in the long run. And this is something that can lead to a recession.

This is where the role of the central bank comes into play. They need to be able to strike a balance between generating business opportunities and curbing inflation.

Rising inflation across Europe

Economic data today can play a critical role in the policies of the European Central Bank. Inflation is one of the determinants of the monetary policy outlook.

The EU inflation rate for February will be announced on Wednesday, and polls suggest that February inflation is widely expected to rise 0.2% from January to 5.3%. Inflation continues to soar as worries about rising energy prices intensify. Hence, this can lead to rates hikes, not achieving the expected results.

A strong labour market is likely to be at the top of the central bank's list of priorities than curbing inflation to avoid a possible recession. And that is why Lagarde is cautious about raising interest rates.

The solid job market is a higher priority for CBs

Another important economic data on Wednesday is the change in unemployment in Germany. The report on the change in unemployment in Germany, the largest economy in the euro, shows that the decline in unemployment has accompanied an average of 35,000 jobs per month in the last four months. February unemployment is expected to fall more than the 23,000 jobs forecast.

As a result, pursuing a real economic recovery could be more helpful in clarifying the European Central Bank's policies against inflation. It seems that unless the bank is confident enough about economic recovery, it will not be able to offset the side effects of expanding the money supply in the form of inflation in the medium term.

OPEC Plus meeting

The Organization of the Petroleum Exporting Countries and its partners, including Russia, called OPEC Plus, will meet on Tuesday to decide on future production levels.

After witnessing the unification of Western countries against the Russian invasion of Ukraine for the past six days, today will be an opportunity for Russia to test its alliance.

The OPEC Plus summit could have a political connotation. At the same time, the reluctance of large producers to ramp up supply could ignite the oil market.

However, improving oil markets and a cautiously optimistic outlook for demand indicates that OPEC Plus will continue to add supply.

Since August, they have gradually increased their global supply, raising their production target to 400,000 barrels per day.

US Economic Outlook

Investors will closely follow Powell's speech before the Economic Committee on Wednesday and Thursday. The head of the Federal Reserve will explain today and tomorrow the monetary policy and the outlook of the US economy from the perspective of this bank. The most important part of this event is the question and answer session after the speech. The Fed's view on the most important current events is usually expected to be questioned.