- Shares head higher as Russia and Ukraine talk in Turkey
- Bond markets continue to flag recession fears
- German and French consumer confidence drops
- Yen tries to steady, but heading for worst month since 2016
- Russia signals it will default, by paying $ bond in roubles
World share markets and global borrowing costs surged on Tuesday, as the first face-to-face talks between warring Russia and Ukraine in nearly three weeks yielded signs of progress, reports the Guardian.
EU shares climb
European shares are climbing on optimism about the peace talks between Ukraine and Russia. The FTSE 100 index in London has gained 63 points to 7,537, a 0.85% rise, while Germany’s Dax and France’s CAC 40 have rallied more than 3%, and Italy’s FTSE MiB is 2.4% ahead. Bond yields have also jumped, and the euro rose 1.3% to $1.1127.
US stocks opened higher on Wall Street, with the Dow Jones climbing 244 points to 35,200, up 0.7%.
Russia has promised to dramatically scale back its military operations in northern Ukraine, easing supply concerns that have sent commodity prices surging. Ukraine has proposed adopting neutral status with international guarantees to protect it from future attacks.
Oil prices slip
Oil prices have fallen by more than 5%, extending Monday’s selloff, with Brent crude falling more than $5 to $107.03 a barrel while US light crude slid to $100.77 a barrel.
On the metal markets, aluminium led industrial metals lower. Russia is a major producer of aluminium, nickel and copper.
Benchmark three-month aluminium fell 5.4% to $3,410 a tonne, after hitting a record high of $4,073.50 a tonne on 7 March.
Drop in French and German consumer confidence
Europe’s main bourses enjoyed 1%-2.5% gains and oil tumbled 4% as Russia’s deputy defence minister emerged saying Moscow has decided to drastically cut military activity around Ukraine’s capital Kyiv and also Chernihiv.[.EU][O/R]
Wall Street looked set to extend a three-day run of gains.[.N] Asia had been lifted overnight too after the Bank of Japan defended its vast stimulus programme, although there was still the yen’s worst month since 2016 raising eyebrows. [/FRX]
Dealers also shrugged off bigger-than-expected drops in French and German consumer confidence data and signs that Russia will push ahead with plans to start billing for it gas in roubles, and is prepared to risk a historic sovereign debt default.
Germany’s benchmark 10-year Bund yield – the main gauge of European borrowing costs – hit its highest since early 2018 and 2-year yields turned positive for the first time since 2014, adding to the seismic shifts in global rates markets this year as inflation has surged. [GVD/EUR]
The curve inversion
Ten-year U.S Treasuries were at 2.47% while the equivalent 2-year yields were at 2.38%, having now risen an eyewatering 165 basis points this quarter. More than 200 basis points of U.S. interest rate rises are also now priced in for 2022 which, if realised, would be the most in a calendar year since 1994.
The difference between two and 10-year Treasury yields seems well on the way to turning negative for the first time since 2019 as well.
This is the so-called curve inversion that is considered a reliable predictor of recession, although the U.S. Federal Reserve has urged investors to also watch other curve segments which are still steep, giving it room to tighten policy further and faster.
“We have seen something that is a little unprecedented because the Fed is suddenly facing a question about its credibility and whether it can effectively reduce inflation,” Amundi’s Head of Multi-Asset strategies, Francesco Sandrini, said.
He added Amundi had revised down its European growth forecast to 1.5% for the year from 2% previously, but it could be lower if the situation continues to deteriorate.
“We question a lot our forecasts,” Sandrini said, especially as Europe’s big companies are more heavily exposed to commodity price pressures than U.S. counterparts. “It is extremely complicated, we need to proceed cautiously.”
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Source: The Guardian