A look at the day ahead in markets from Dhara Ranasinghe.

An aggressive 50 basis point U.S. interest rate hike to contain inflation now appears like a no-brainer after the hottest inflation reading in nearly 40 years.

St. Louis Federal Reserve President James Bullard said Thursday’s data, with its 7.5% headline inflation print, made him “dramatically” more hawkish. He now wants a full percentage point of rate hikes over the next three U.S. central bank policy meetings.

Money markets didn’t waste any time — they price in a more than an 80% chance of a large half-point rate hike when the Federal Reserve meets in March.

The U.S. 10-year Treasury yield is above 2%, and one-year bond yields are up 27 basis points this week, set for their biggest rise since 2008.

Stock markets, which just days ago appeared okay with the idea that rates are heading higher, are starting to feel jittery at the thought of aggressive rate hikes coming fast.

MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 1%. European stock futures are down 1%, U.S. futures too are falling — not a good sign for Wall Street.

Some central bankers are trying to push back against the market narrative on the rate outlook.

Raising the European Central Bank’s main rate now would not bring down record-high euro zone inflation and hurt the economy, ECB President Christine Lagarde said in an interview.

Tensions over Ukraine meanwhile give investors another reason to stay away from risk assets for now.

Britain said on Thursday the “most dangerous moment” in the West’s standoff with Moscow appeared imminent, as Russia held military exercises in Belarus and the Black Sea following the buildup of its forces near Ukraine.

Russia’s central bank is expected to raise its key rate by 100 basis points later in the day.

It doesn’t look like it’s going to be a quiet end to the week.

Key developments that should provide more direction to markets on Friday:

– Australia drops landmark criminal cartel case against Citi, Deutsche

– UK economy shrank by less than expected in December

– ECB board member Frank Elderson speaks – 0805 GMT.

– EU financial services chief Mairead McGuinness speaks

– Switzerland inflation

– U.S. University of Michigan conditions/inflation expectations survey

– U.S. earnings: AllianceBernstein, Dominion, Goodyear

– European earnings: Tate and Lyle, BAT,

– Turkey current account Dec, Hungary Jan CPI

(Reporting by Dhara Ranasinghe, editing by Karin Strohecker)