Asian markets slipped on Friday and gold stood at an eight-month high after an exchange of fire in eastern Ukraine and renewed U.S. warnings of an imminent Russian invasion had investors looking for safety ahead of the weekend.
U.S. and European stock futures bounced back on Friday and selling pressure on Asian shares eased after the U.S. Secretary of State agreed to a meeting with Russias foreign minister, raising hopes of a solution to the standoff over Ukraine.
S&P 500 futures ESc1 jumped 0.7% and Nasdaq futures NQc1 gained 0.8% following the news, while, in early trading, pan-region Euro Stoxx 50 futures were up 0.45%, and FTSE futures FFIc1 were 0.4% higher.
The positive sentiment ranged across asset classes. Safe-haven currencies such as the Japanese yen JPY= and Swiss franc retreated a little in Asia trade having climbed to two-week highs on the dollar overnight, and gold lost 0.4%.
U.S. Secretary of State Antony Blinken has accepted an invitation to meet with Russian Foreign Minister Sergei Lavrov late next week provided Russia does not invade Ukraine, the U.S. State Department said. (Full Story)
“It‘s better news than what we had yesterday,” said Kyle Rodda, an analyst at IG Markets in Melbourne. “But we’ve seen diplomatic talks go nowhere before, and the troops are still on the border, so risks remain.”
There was slightly less positivity when it came to Asian shares. MSCIs broadest index of Asia shares outside Japan .MIAPJ0000PUS was last down 0.24%, but markets in Tokyo .N225, Hong Kong .HSI, Sydney .AXJO and Seoul .KS11 all pared deeper morning losses..T.HK.KS.AX
Wall Street had taken a dive overnight, with the S&P 500 .SPX dropping 2.1% and the Nasdaq .IXIC off 2.9% – while gold shot to an eight-month peak – on renewed U.S. warnings of an imminent Russian invasion. (Full Story)
Investors fear a wider war as one of the deepest crises in post-Cold War relations plays out, with Russia wanting security guarantees, including Ukraines never joining NATO.
Treasuries likewise gave back some overnight gains, with the benchmark 10-year yield US10YT=RR last up two basis points to 1.9877%. Two-year yields also rose two basis points to 1.4902%. US/
Oil dipped and Brent crude futures LCOc1 were last down 0.6% on Friday at $92.44 a barrel, more than 4% below Mondays peak, and U.S. crude CLc1 fell 0.7% to $91.07 a barrel.
RATES RACE
Concern about conflict in Ukraine comes with markets already rattled by a rates outlook that could hold as many as seven Federal Reserve increases in the year ahead.
St. Louis Fed president James Bullard on Thursday reiterated his call for the Fed funds rate to be raised to 1% by July to combat stubbornly high inflation and Fed funds futures 0#FF: price about a 1/3 chance of a 50 bps hike next month to begin.
Cleveland Fed President Loretta Mester said the pace of hikes will need to be faster than previous cycles.
“Markets have been particularly volatile recently and virtually everyone adjusted their Fed hike calls higher,” said NatWest Markets strategist Jan Nevruzi.
“The consensus seems to range between 5 (our view) and 7 (every meeting) hikes and I do believe the right number lays somewhere in between. Given the strong growth trend and elevated inflation, it wouldnt be too surprising to see a hike at every meeting from now on,” Nevruzi said.
On Friday, Japan reported a fifth straight month of inflation, with energy prices posting their biggest annual rise in 41 years.
Elsewhere in currency markets the dollar held its bid and was firm at $1.1363 per euro EUR=EBS though the Aussie gained a little in line with the risk-on mood to $0.7201.
(Editing by Lincoln Feast)
