Inflation unlikely to take focus away from MH17 disaster

• Stand-off over flight debris to prompt additional sanctions on Russia

• Yellen's jobs language changes key for US CPI measure tomorrow

• European Foreign Ministers to meet tomorrow to discuss situation

• Bank of England minutes to show dissent on rates

The tragedy of Malaysian Airlines flight MH17 was the obvious market event of last week and the reaction to the literal and metaphorical debris will continue to guide markets this week. Russian assets were the hardest hit and we expect the ruble to remain under pressure with a slight chance of additional euro weakness as well, on the likelihood that the rhetoric around the entire Ukrainian situation increases. Natural hedges against market volatility will be found in the USD, JPY, gold and oil.

The issue of additional sanctions remains key. The UK, Germany and France have all warned Russia that additional sanctions will be levied on assets should investigators not be allowed into the crash site and the bodies of the fallen are not returned. A meeting of European foreign ministers on Tuesday will add clarity to the situation but it remains unclear whether this tragedy will see Russian energy companies and arms imports targeted.

Geopolitical concerns have been numerous this year with the initial Ukrainian skirmishes taking place in January alongside riots, protests and martial law in Thailand and the continual war in Syria. Since then we have seen conflict flare up in Nigeria, Iraq, Israel/Palestine and Egypt. There are probably more. Despite this however, the drive of world equity markets has been higher as investors continued bets on higher prices as the world's central banks remained happy to feed further liquidity measures into markets in the form of asset purchases and quantitative easing. The key to this week's movements will be relative inflation dynamics.

US inflation has been cast as the missing piece to the Federal Reserve's puzzle that is the US economy. Changes in the language from Fed Chair Janet Yellen last week showed an appreciation of the improved performance of the country's jobs market. The Fed Chair said that “if the labor market continues to improve more quickly than anticipated by the Committee, resulting in faster convergence toward our dual objectives, then increases in the federal funds rate target would occur sooner than currently envisioned.” A similar statement in June said “if the economy proves to be stronger than anticipated by the Committee…”.

We think that this is important as it registers a duality of economic performance between the UK and US. Both have strong and improving jobs markets but the former has also seen a large tick higher in inflation. UK inflation's consensus busting figure of 1.9% last Tuesday has convinced sterling bulls that the Bank of England will be raising interest rates in the UK sometime before the end of the year - a full 2 years before Mark Carney's initial forward guidance plan had suggested. A similar, strong number from the US's CPI reading for June tomorrow afternoon, following up last week's strong PPI announcements, will see a shift in the expectations of Fed Funds rate. We are not calling for a strong reappraisal of USD but we look for stronger inflation to aid the greenback.

Likewise, the Bank of England minutes from July's meeting should be constructive for GBP. Dissent from members of the Monetary Policy Committee must be beginning to swell following a continued appreciation of UK monetary dynamics. Once again, doves will be hanging on to the notion that real wages are still negative to express caution over the speed of interest rate increases. We expect that Thursday's retail sales and Friday's GDP announcements will also be sterling positive.

Have a great day.