Stocks Rise as Yields Drop With Ukraine Talks Eyed: Markets Wrap
- Oil holds most of slide, dollar drops; U.S. futures pare drop
- Key segment of Treasury curve inverts, first time since 2019
Stocks in Asia rose Wednesday as investors weighed prospects for a de-escalation in the war in Ukraine that could reduce pressure on commodity prices, allowing inflation to ease and slowing the pace of monetary policy tightening.
A gauge of Asia Pacific shares rose for a second day, lifted by Hong Kong and China. Equities fell in Japan as the yen lifted off a six-year low and as some stocks traded without the rights to the next dividend. U.S. futures wavered after the S&P 500 gained for a fourth day and the Nasdaq 100 also climbed.
Bonds got a reprieve from their recent rout as hopes for progress in talks between Russia and Ukraine drove down oil prices and inflation expectations. A slide in long-end yields saw the two- to 10-year curve briefly invert — typically a signal of impending recession, though its accuracy is in doubt after years of heavy stimulus.
In Japan, bonds climbed with the yen after the Bank of Japan pledged to buy more securities than planned and include longer-dated debt.
Oil reversed a little of its slide as investors remained circumspect about the chances of a resolution to the war. Russia said it will sharply reduce military activity near Ukraine’s capital Kyiv and its chief negotiator said Moscow would take steps to “de-escalate” the conflict. The talks failed to reach agreement on a cease-fire, however, and the Pentagon said Kyiv remains under threat. The dollar slipped.
The rally in equities globally remains fragile as the war in Ukraine drags on, and analysts are skeptical of Russia’s intentions. The Treasury yield curve’s inversion is fanning debate over the risks of a growth downturn as central banks globally begin to withdraw stimulus. Money markets in the U.S. are pricing in two percentage points of additional interest-rate hikes this year.
“The yield curve inversion needs to be sustained before it’s a predictor of anything,” Mariann Montagne, Gradient Investments senior portfolio manager, said on Bloomberg Television. “We’ll have volatility both in the stock and the bond markets but we think that progression” on the cease-fire talks will lead to upward earnings revisions.
A lack of clarity on the cease-fire talks and supply-chain shortages will pose headwinds for the markets, she said.
Philadelphia Fed Bank President Patrick Harker said he expects a series of “deliberate, methodical” rate increases this year, but said he is open to a half-point move in May if near-term data shows more inflation.
Consumer sentiment appears resilient, as the latest U.S. confidence data suggest solid job growth has offset Americans’ concerns over accelerating inflation for now. Government data Friday are expected to show the economy probably added close to a half million jobs in March as the unemployment rate fell to 3.7%.
Elsewhere, Chinese technology stocks pared gains after a Wall Street Journal report of new curbs in the live-streaming industry.
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