- European stocks are volatile, Asian stocks are falling
- Fighting continues to rage in Ukraine, some indication of progress
- Fed Chair Powell expected to repeat hawkish view
- Crude oil prices jump as EU weighs Russian embargo
MILAN (Reuters) – Stock markets around the world fell on Monday as fighting raged in Ukraine with no sign of a ceasefire even as diplomacy continued, while Brent crude prices rose above $110 a barrel as supplies remained tight.
Turkey’s foreign minister said on Sunday that Russia and Ukraine were close to an agreement on “critical” issues and hoped for a ceasefire if the two sides did not back down from the progress made so far. Read more
Most stock markets rebounded last week in anticipation of a final peace deal on Ukraine, but it may take actual progress to justify further gains.
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US President Joe Biden is scheduled to meet with NATO allies on Thursday and visit Poland on Friday. Read more
“The coming days will be a critical test of whether last week’s risk rebound has been overblown. Hopes for a peaceful resolution in Ukraine have relied more on the headlines than on the evidence,” said ING’s Francesco Pesol and Chris Turner.
They added that “if a ceasefire is not agreed upon in the coming days, markets may struggle to stick to their optimistic approach to the conflict.”
MSCI World Stock Index (.MIWD00000PUS.) It was down 0.05% by 0834 GMT. European stocks were volatile with STOXX 600 across the region (.stoxx) The last indicator was up 0.1%. S&P 500 and Nasdaq futures were down 0.1% and 0.3%, respectively.
In Asia, where Japanese markets were closed for a public holiday, the broadest MSCI Index of Asia Pacific shares outside Japan was (.MIAPJ0000PUS.) It fell 0.7% as investors awaited more details on potential stimulus from Beijing.
Last week’s BofA survey of global fund managers was bearish biased with cash levels the highest since April 2020 and the global growth outlook the lowest since the 2008 financial crisis. Longer oil and tradable commodities have been the busiest and most vulnerable to declines. Read more
The war in Ukraine, soaring commodity prices, supply chain issues, and tightening policies have made investors less optimistic about global earnings growth prospects.
“The range of results now is extraordinarily broad, so at the margins you have to rein in the amount of risk you are taking,” said Keith Lerner, chief investment officer at Truist.
“In the past few years we’ve had huge upward revisions (on earnings) but this year there has been less room for upside earnings surprises. We still think companies will beat estimates but to a lesser degree,” he added.
Investors were also waiting to see if Russia would meet more interest payments this week. It should pay out $615 million in coupons this month while on April 4 the $2 billion bond comes due. Read more
Russia will also allow trading of OFZ bonds to resume on the Moscow Stock Exchange on Monday, but stock trading, which has been suspended since Western sanctions disrupted markets late last month, will remain closed.
Bond markets braced for more hawks from the US Federal Reserve as Chairman Jerome Powell spoke on Monday, and at least six other members during the week.
Policy makers have signaled a series of future rate hikes to move the money rate anywhere from 1.75% to 3.0% by the end of the year. The market is indicating a 50-50 chance of a half point hike in May and a higher chance by June.
“In balancing the near-term upside risks of inflation with the downside risks of growth, central banks are sending a clear and strong signal that policy is on course to normalize,” said Bruce Kasman, chief economist at JPMorgan.
“A sustained cut to Russia’s energy supply will push inflation significantly higher, amplifying the already severe pressure on the purchasing power of American consumers,” he warned, adding that it would likely push the eurozone into recession.
“Under this scenario, the normalization of politics around the world will stop.”
European Central Bank President Christine Lagarde said on Monday that Europe’s efforts to combat climate change and reduce its dependence on fossil fuels will be inflationary in the short to medium term but lower prices in the long term.
The market seems aware of the risks to growth given the remarkable flattening of the Treasury yield curve in recent weeks. The spread between 2-year and 10-year returns narrowed to just 21 basis points, the smallest difference since the pandemic began in early 2020.
Higher Treasury yields helped lift the US dollar against the yen, as the Bank of Japan remains committed to keeping yields near zero. The dollar rose near its highest level since early 2016 at 119.19 yen, after rising 1.6 percent last week.
The dollar has had less luck elsewhere, in part because history shows that the currency tends to fall once the Fed begins a tightening campaign.
The euro settled at $1.105 on Monday, after jumping 1.3% last week. The dollar index settled at 98.242, from a high recorded earlier in March at 99.415.
Joseph Caporso, CBA’s head of international economics, noted that rapid industrialization (PMI) studies from Europe will be an obstacle for the euro this week.
“Europe is most exposed to the decrease in the supply of gas and agricultural imports from Russia and Ukraine, and the increase in their prices,” he said. “The drop in the Eurozone PMI into deflationary territory may push the EUR/USD back near war lows of $1.0806 again.”
In the commodity markets, gold failed to get much of a lift from safe haven flows or inflation fears, losing more than 3% last week. The last gain was 0.2% at $1,924 an ounce.
Oil prices also fell last week, but were rushing higher on Monday as there was no easy alternative to Russian barrels in a tight market.
Brent rose 4 percent to $112.20, while US crude rose 4.2 percent to $109.14 a barrel, with European Union countries considering joining the United States in a Russian oil embargo, while the weekend attack on Saudi oil facilities caused tension.
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Additional reporting by Danilo Masoni in Milan and Wayne Cole in Sydney; Additional reporting by Sujata Rao in London. Editing by Susan Fenton
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