A trader works on the floor of the New York Stock Exchange (NYSE) in New York, U.S., September 9, 2022. REUTERS/Brendan McDermid

Join now for FREE unlimited access to Reuters.com

A preview of the day ahead in US and global markets by Mike Dolan.

The reversals of the year’s twin political and economic shocks dominate the start of the week for global markets.

Ukraine’s dramatic military counteroffensive against Russian troops this weekend has challenged many assumptions of a frozen conflict for years to come – with potentially far-reaching implications for energy prices, inflation outlook and geopolitical risk premia.

Join now for FREE unlimited access to Reuters.com

Although there was inevitable concern over Russian retaliation as Moscow grappled with the collapse of its occupation force in northeastern Ukraine, Ukrainian forces swept through the recaptured territories on Monday. . Read more

To the extent that the outsized appreciation of the US dollar this year owes something to heightened geopolitical risks, its sharp reversal late last week is notable and continued on Monday. The DXY dollar index fell again to its lowest in more than two weeks and is down 2.7% from 20-year highs reached only last Wednesday.

The euro – one of the major currencies most affected by the implications of Ukraine’s invasion this year – hit its highest level in nearly a month, buoyed by a newly hawkish European Central Bank and Changing market forecasts for both interest rate tightening and equilibrium. sheet reduction. Read more

Stock markets were up across the world on Monday, with Japanese and European benchmarks up more than 1% and U.S. stock futures up more than half a percent ahead of the open.

But the other turning point to watch this week is the extent to which US inflation is actually falling.

Key to the outlook for the US Federal Reserve’s rate hike campaign, August US consumer price data is released on Tuesday and headline annual inflation is expected to fall back to 8.1% from 8, 5% in July – one percentage point below the June peak but with “core” rates excluding energy and food expected to rise to 6.1% from 5.9%.

Two-year US Treasury yields rose ahead of schedule to a 15-year high of 3.58% as markets fully priced in another 75 basis point hike from the Fed later this month. And futures markets see the Fed’s so-called “terminal rate” at around 4% in March.

Brent crude oil prices – which have fallen about 25% since mid-year – weren’t playing the game on Monday, rallying above $93 a barrel despite global demand concerns over COVID-19 restrictions in China and sharp interest rate hikes in the US and Europe. Read more

US Treasury Secretary Janet Yellen said on Sunday that Americans could experience a winter gas price spike when the European Union drastically cuts its purchases of Russian oil, but added that a proposed Western price cap on Russian oil exports is designed to control prices. Read more

As the euro strengthened, the Japanese yen retreated on Monday. Sources familiar with the Bank of Japan’s thinking believe that the central bank is far from changing its overall monetary policy to support the currency. Read more

The pound was also higher against the weaker dollar, although data showed the UK economy grew by just 0.2% in July, half of what was expected as a drop in the electricity production reflected sharp increases in energy prices. Read more

Key developments that should provide more direction to US markets later on Monday:

* 3- and 10-year US treasury bond auctions

* Corporate Benefits: Oracle

* US-Mexico High-Level Economic Dialogue. Visit of US Secretary of State Antony Blinken to Mexico

CPI inflation in the United States is falling?

Join now for FREE unlimited access to Reuters.com

By Mike Dolan; Edited by Edmund Klamann [email protected]. Twitter: @ReutersMikeD

Our standards: The Thomson Reuters Trust Principles.

The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and non-partisanship by principles of trust.