A look at the day ahead in markets from Tommy Wilkes.

Barring a last-minute rebound, global stock markets will end this week lower — for European stocks that’s the first weekly drop in four — with investors getting nervous about the speed at which central banks will tackle inflation.

While government bond yields have been marching higher throughout March and April, stocks have been shrugging off tightening fears and rising rapidly.

The tone of the Federal Reserve meeting minutes this week, in which 50 basis point hikes and a big $95 billion a month shrinkage in the balance sheet appear likely, seemed to shake investors out of their calm state of mind.

The European Central Bank followed with a more aggressive tone than expected in their own minutes.

This week’s rise in government bond yields — up more than 20 basis points for 10-year U.S. Treasuries — was punchy but in line with the recent dramatic price action.

But stocks dropped as investors focused on the likelihood that central banks will be hiking aggressively to tame inflation just as the war in Ukraine knocks global economic confidence. Warning signals for a potential recession in the euro zone and even the United States are flashing red.

Overnight there was some respite with Wall Street making a late recovery, and European markets have opened slightly higher.

The other big story for markets in the euro zone this week is Sunday’s first-round French election, where incumbent President Emmanuel Macron looks set for the fight of his life.

The tight French presidential race is adding to nerves and has sparked a selloff in French government bonds this week.

It has been a quiet week for corporate news with little in the way of earnings.

Graphic: FED AND STOCKS- https://fingfx.thomsonreuters.com/gfx/mkt/xmpjoqxkavr/Pasted%20image%201649296859647.png

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

– Shanghai widens COVID testing as other Chinese cities impose curbs

– Japan’s Feb current account swings back to surplus from big deficit

– German Chancellor Olaf Scholz travels to London to meet British Prime Minister Boris Johnson

– Reserve Bank of Australia Financial Stability Review

– Russian Q4 GDP

– ECB’s Executive Board Fabio Panetta; Bank of Spain’s governor Pablo Hernández de Cos; board member Isabel Schnabel

(Reporting by Tommy Wilkes; Editing by Dhara Ranasinghe)