By Peter Nurse 

Investing.com — Western powers have responded to Russia’s move into eastern Ukraine by levying sanctions, but stocks are set to open higher with investors responding positively to the measured nature of the response. Eurozone inflation remains elevated, meaning the European Central Bank will soon join the Bank of England in having difficult monetary policy decisions to make. Here’s what you need to know in financial markets on Wednesday, 23rd February. 

1. Limited Western sanctions 

The West has responded to Russian troops entering eastern Ukraine, after Russian President Vladimir Putin officially recognized two regions as independent republics, by levying sanctions targeting Russian banks as well as members of Russia’s elite with close ties to the Kremlin.

However, they fall well short of the severe economy-crippling measures the U.S. and its allies had promised if Russia was to enter Ukraine.

By holding back, the West is trying to maintain leverage over Moscow in an attempt to prevent an invasion of the whole of Ukraine, including the capital Kyiv. 

However, it could also be seen as a sign of weakness amid concerns over whether the global economy will be able to cope with surging energy prices as well as rising interest rates, creating the potential for stagflation.

2. British monetary policy challenges

The extent of the difficulties the Bank of England is currently facing was laid bare by the central bank’s Deputy Governor Ben Broadbent in an annual report to Parliament Wednesday.

“This is the most challenging period for monetary policy since inflation targeting began in 1992,” he stated.

The raised interest rates to 0.5% this month from 0.25%, its second hike in the last two meetings, and investors are pricing in another rate hike at the bank’s next scheduled meeting in mid-March.

Broadbent said there was no guarantee that the inflationary impact of rising import prices would fade quickly.

This view was matched by Deputy Governor Dave Ramsden, speaking at the National Farmers’ Union annual conference on Tuesday.

“Some further modest tightening in monetary policy is likely to be appropriate in the coming months,” Ramsden said, but “new shocks can arise – we did not foresee the recent rise in energy prices, and as we meet today the crisis in Ukraine is intensifying – and so we should remain humble about the possibility that things might turn out differently.”

3. Stocks set to open higher; S&P to bounce from correction territory

U.S. stock markets are set to open higher later, rebounding after recent hefty losses as investors take a more sanguine view of events in Eastern Europe.

By 6:10 AM ET (1110 GMT), were up 210 points, or 0.6%, while were up 0.7% and were up 1%.

The blue chip dropped almost 500 points, or 1.4%, on Tuesday, its fourth consecutive losing session. The broad-based fell 1%, resulting in the index dropping into correction territory, more than 10% below its record close in early January. The declined 1.2%, also its fourth straight negative session.

There are no major economic data releases due Wednesday, but there is likely to be a lot of focus on the auctions of $35 billion of 119-day bills, $53 billion of 5-year notes, and $22 billion of 2-year floating-rate notes given the uncertain geopolitical situation.

Stocks in focus Wednesday include cybersecurity company Palo Alto Networks (NASDAQ:), which beat expectations with its second quarter earnings released late Tuesday, and Virgin Galactic (NYSE:), after the space company reported a smaller-than-expected fourth quarter loss.

4. Eurozone inflation puts focus on March ECB meeting

Eurozone inflation remained highly elevated in January, with the annual figure confirmed at 5.1%, a gain of 0.3% on the month. This raises the pressure on the European Central Bank to rein in monetary policy that still includes a bond-buying program.

The ECB is widely expected, when it next meets in March, to signal an end to bond purchases in the third quarter, opening the door to a rate hike before the close of the year.

However, ECB policymaker Robert Holzmann challenged that sequence by saying in a press interview that the central bank could begin increasing interest rates before ending its asset purchasing scheme.

The head of Austria’s central bank is one of the more hawkish members of the ECB’s governing council, but his comments bring the meeting on March 10 firmly into focus.

5. Crude retreats from seven-year highs

Crude oil prices handed back some of the previous session’s gains Wednesday, falling from seven-year highs as the West stopped short of targeting Russia’s energy market while levying sanctions on Moscow for sending troops into eastern Ukraine.

“Sanctions announced up until now should not have much impact on Russian oil exports,” said analysts at ING, in a note. “Local banks which are heavily involved within the commodities industry have been left untouched.”

At the same time, Western powers and Iran appear to be close to reviving a nuclear agreement, which in return for Tehran limiting its nuclear ambitions would result in the Persian Gulf country’s crude exports returning to the global market.

Investors now await oil supply data from the , due later Wednesday after the holiday weekend. Last week, the industry-funded body reported a draw of just over one million barrels.

By 6:10 AM ET, U.S. crude futures were down 0.9% at $91.12 a barrel, while futures were down 0.7% at $93.16 a barrel, having climbed to their highest level since September 2014 on Tuesday. 

were down 0.3% at $2.8472 a gallon.