Home NewsEconomy News Differing paths but which is the right one? By Reuters

Differing paths but which is the right one? By Reuters

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© Reuters. A trader works at the Frankfurt Stock Exchange in Frankfurt, Germany, on February 22, 2022. REUTERS/Timm Reichert

Looking ahead to the future market from Dhara Ranasinghe.

With the weekend just around the corner, one thing is clear, central banks increasingly seem to be on different paths, and investors are not entirely convinced that this is the right path.

So even as the Fed embarks on a rate-hike cycle and hints at an aggressive plan to push up borrowing costs to keep inflation in check, markets are pricing in a potential recession from such action.

The gap between two-year and 10-year U.S. Treasury yields was just 24 basis points, close to the narrowest level since March 2020. That means the yield curve isn’t far from an inversion — an indicator of a possible recession in the next one to two years. It has a good track record.

Meanwhile, the Bank of England raised interest rates for the third time on Thursday, but softened its rhetoric about the need for further hikes as households face a huge hit from soaring energy bills.

ECB President Christine Lagarde said the ECB would not be in a hurry to raise interest rates (markets still expect at least four hikes of 10 basis points each by the end of the year), while the Bank of Japan on Friday Maintained its massive stimulus and warned of heightened risks from the Ukraine crisis.

Whether it’s raising interest rates and keeping inflation in check but risking tipping the economy into recession or doing nothing to steer the economy through the aftermath of the Ukraine war and an inflationary spiral, policymakers are left in a bind.

Crude oil prices rose back above $100 to no avail.

However, the first Russian external bond default in a century appears to have been avoided for now. Some creditors have received dollar-denominated coupons on Russian bonds due this week, the sources said.

European stock futures were broadly flat, while U.S. stock futures were lower as global markets took a breather after days of gains.

Key developments Friday that should give the market more direction:

– S&P downgrades Russia’s debt default risk rating to ‘CC’

– Eurozone wages/employment, trade balance data

– Richmond Fed President Thomas Barkin, Chicago President Charles Evans and Federal Reserve – Governor Michelle Bowman speech

– U.S. Existing Home Sales Data

– Emerging market central banks: Azerbaijan, Russia

– Moody’s (NYSE: ), DBRS review Greece’s ratings

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