What to watch

After yesterday's risk-on session driven partly by optimism over compromise between Ukraine and Russia, we have seen a small retracement overnight as headline flow has focused more on US warnings of potential for Russian deployment of chemical and/or biological weapons. Eurodollar and Euribor strips are around 1-2 ticks higher than yesterday's European close at writing.

Today will be a busy day with the geopolitical headlines still being closely watched while the ECB meeting and US CPI will be the calendar highlights.

• ECB meeting: (12:45GMT / 13:45CET policy statement, 13:30GMT / 14:30CET press conference): Having appeared to be gearing up to normalise monetary policy, the ECB’s calculus has now changed following the Russian invasion of Ukraine. For the time being, the direction of travel for monetary policy remains unchanged, but any momentum building behind a near-term tightening has subsided. The ECB will reconfirm the December policy calibration, but the narrative on the medium-term inflation outlook will now reflect the new two-way risks that have resulted from the Ukrainian crisis. Markets currently price around 30bp of hikes in for 2022 (i.e. one 25bp is fully priced this year) For the full MNI ECB Preview click here.
• US CPI (13:30GMT / 14:30GMT): There seems to be two-way risk to markets from the print with a miss in core inflation after last week's softer AHE earnings number, dialing down market pricing for hikes later this year. However, given Powell's talk of 50bp hikes down the line if inflation runs hot, a higher than expected print here could see the market price more in. Markets currently price in 158bp of hikes this year (i.e. six 25bp hikes fully priced). Consensus has headline CPI surging +0.8% M/M in Feb on energy and less so food prices, of which the largest effects aren't likely to show until March. That would see year-on-year inflation rise from 7.5% to 7.8% Y/Y. Whilst normally looked through, non-core gains will add pressures to areas that consumers feel the most and carry the risk of a further drifting insurvey-based inflation expectations. For the full MNI US CPI Preview click here.