- Stocks Head Higher as Russia and Ukraine Talks in Turkey
- Bond markets continue to report recession fears
- German and French consumer confidence plummets
- Yen is trying to stabilize, but heading for worst month since 2016
- Russia is signaling that it will default, by paying dollar bonds in rubles
NEW YORK/LONDON (Reuters) – Global stock markets jumped and global borrowing costs soared on Tuesday, as the first direct talks between warring Russia and Ukraine in nearly three weeks yielded signs of progress. Read more
US stock indices jumped more than 0.5%, major European stock exchanges gained between 1% and 2.5%, and oil prices tumbled 4% with the appearance of the Russian Deputy Defense Minister saying that Moscow decided to significantly reduce military activity around the Ukrainian capital Kyiv as well as Chernihiv. Read more
Wall Street seemed ready to extend its three-day winnings. Asia saw an overnight rally as well after the Bank of Japan defended its broad stimulus program, although the yen’s worst month since 2016 was still surprising. / FRX
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Traders also shrugged off larger-than-expected drops in French and German consumer confidence data and signs that Russia would press ahead with plans to start billing gas in rubles, ready to risk a historic sovereign debt default. Read more
Germany’s benchmark 10-year bond yield – the main gauge of European borrowing costs – has hit its highest level since early 2018 and two-year bond yields have turned to their highest since 2014, adding to the seismic shifts in global interest rate markets this year due to inflation. soared.
US Treasury yields paused their rally on Tuesday, but rose 165 basis points this quarter.
The benchmark 10-year US Treasury bond was 2.426% while the equivalent two-year yield was 2.38%, and more than 200 basis points of US interest rate hikes were priced in 2022 which, if achieved, would be the highest in a calendar year since 1994.
The spread between the two-year and 10-year Treasury yields appears to be on the way to turning negative for the first time since 2019 as well.
This is the so-called reversal of the curve that is a reliable indicator of a recession, although the US Federal Reserve has also urged investors to watch other segments of the curve that are still very steep, giving it scope to tighten policy further and faster.
“We saw something somewhat unprecedented because the Fed suddenly faces a question about its credibility and whether it can effectively reduce inflation,” said Francesco Sandrini, head of multi-asset strategies at Amundi.
He added that Amundi had revised its forecast for European growth down to 1.5% for the year from 2% previously, but it could drop if the situation continues to deteriorate.
“We are very skeptical about our expectations,” Sandrini said, especially since major European companies are more exposed to commodity price pressures than their US counterparts. “It’s very complicated, we need to proceed with caution.”
hit the yen
Dow Jones Industrial Average (.DJI) The S&P 500 rose 0.59%. (.SPX) Gained 0.50% and the Nasdaq Composite Index (nineteenth) jumped 0.73%. MSCI’s benchmark for stocks worldwide (.MIWD00000PUS) 1.03% profit.
All major S&P 500 indices, Dow Jones and Nasdaq are on track to finish March higher. However, they are also set to post their worst start to a year and in any quarter since the start of 2020 when the outbreak of the coronavirus pandemic wreaked havoc on financial markets.
Japanese stocks (.N225) It closed more than 1% higher in Asia overnight though Chinese stocks and oil both fell as Shanghai continued its shutdown to combat the spread of COVID-19.
Tokyo’s rally came as the Bank of Japan pledged to continue pumping stimulus, offering to buy unlimited amounts of 10-year government bonds to prevent bond yields from rising too much.
But the central bank was finding it difficult to move forward. The 10-year government bond yield settled at 0.245%, against the Bank of Japan’s implied 0.25% cap.
This didn’t help the yen much, which was at 122.54 per dollar even after slightly recovering from the bruises it sustained the day before.
“Excessive volatility and uncontrolled currency movements can harm economic and financial stability,” Japan’s chief currency diplomat Masato Kanda told reporters on Tuesday, emphasizing Japan’s and the United States’ intention to communicate closely on exchange rate issues.
Elsewhere, trade has remained volatile. Chi Lu, chief market strategist for APAC at BNP Paribas Asset Management, said investors prefer markets that default to Fed rate hikes, and that operate on a “day-trading mentality” amid market noise and short-term developments.
“There is really no medium-term trend for the market to follow,” he said.
Among commodities, oil prices saw another surprise drop of $4, with Russia’s chief negotiator in the Ukraine talks describing the discussions as “constructive.” This sent Brent down 3.8% to $108.22 a barrel and West Texas Intermediate at $102.04.
Prices had weakened earlier as well as Shanghai, China’s financial hub, tightened its latest COVID-19 lockdown, having reported 4,381 asymptomatic and 96 asymptomatic cases on March 28 – although the number of cases remains modest by global standards. . Read more
“Commodity markets will certainly not be comfortable in the short term with China shutting down,” Lu said. Many observers estimate growth of less than 5% this year for the world’s second-largest economy, he said, a view he rated as “extremely pessimistic” given expectations for stronger stimulus measures.
Spot gold fell 0.8% to $1,907.08 an ounce.
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Additional reporting by Selena Lee in Hong Kong; Editing by Ed Osmond, Andrea Ricci and Jonathan Otis
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