Sat. May 28th, 2022

European and Asian stocks rose on Tuesday as the prospect of progress in peace talks between Russia and Ukraine boosted market sentiment, while oil prices drifted lower after dropping in the prior session.

Europe’s regional Stoxx 600 share index opened 1 per cent higher, with gains for banks and carmakers, although it remained more than 6 per cent lower for the year to date. London’s FTSE 100 rose 0.8 per cent and Germany’s regional Stoxx 600 share index added 1.2 per cent.

In Asia, Hong Kong’s Hang Seng index rose 0.9 per cent, though it also remained 6.5 per cent lower for the year. Japan’s Topix gained 0.9 per cent, while China’s CSI 300 index of Shanghai- and Shenzhen-listed shares fell 0.3 per cent.

Envoys from Moscow and Kyiv met in Istanbul on Tuesday to discuss a potential peace deal that would involve Ukraine abandoning its drive for NATO membership in exchange for security guarantees and the prospect of joining the EU.

Many investors expect the effects of the war, including spiralling prices of commodities and metals produced in the countries, to keep weighing on financial markets, however.

“The tragic war in Ukraine has resulted in a global energy shock. We see this increasing inflation, pressuring consumers and hurting growth, especially in Europe, ”the BlackRock Institute wrote in a note to clients. “The [US central bank] has started to talk tough on inflation and has projected a large increase in rates. ”

Brent crude, the international oil benchmark, edged 0.5 per cent lower to $ 111.90 a barrel. That was about 15 per cent above its closing level of February 23, on the eve of Russia’s invasion of Ukraine, but the price surged to almost $ 140 this month. West Texas Intermediate, the US marker, lost 0.6 per cent to $ 105.28.

China is the world’s largest importer of crude oil. On Monday, authorities announced extreme lockdown measures in Shanghai, the country’s biggest city and financial center, to contain surging coronavirus cases.

In debt markets, shorter-dated US Treasuries remained under pressure as traders bet on the Federal Reserve raising interest rates rapidly this year to battle surging inflation. The Treasury yield curve, which charts the returns on bonds of different maturities and traditionally slopes upwards, continued to flatten as investors avoided near-term economic risk.

Price action in the Treasury market has also been exaggerated by a lack of liquidity ⁠ – the ease with which traders can buy and sell securities ⁠ – after investors turned bearish on bonds, whose fixed-income payments are eroded by inflation.

The yield on the two-year Treasury note, which moves inversely to its price and tracks monetary policy expectations, added almost 0.04 percentage points to 2.42 per cent, almost 1.7 percentage points above its level at the end of 2021. The benchmark 10-year yield was fractionally higher at 2.49 per cent.

“The US Treasury curve has completely fallen off the rails with brutal liquidity conditions and downright strange price action,” analysts at Bespoke Investment Group said.

“This sort of huge front-end sell-off while the long end rallies tend to come during periods of very high volatility or when the Treasury curve is bear-flattening in to a recession.”

Unhedged – Markets, finance and strong opinion

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