Asian shares rally on Ukraine-Russia talks

Beijing — Asian shares surged on Thursday, tracking Wall Street’s gains as planned diplomatic talks between Russia and Ukraine buoyed risk-on sentiment, though analysts warned the rally could be susceptible to a sharp reversal.

Oil prices also regained some footing, having fallen more than 12% on the previous session as the market weighed whether major producers would boost supply to help plug the gap in output from Russia due to sanctions for its invasion of Ukraine.

MSCI’s broadest index of Asia-Pacific shares outside Japan gained 1.6%, pulling away from the lowest level since November 2020. Japan’s Nikkei rallied 3.8%, the most in nearly 21 months.

Chinese blue chips rose 1.75% while Hong Kong’s Hang Seng index was up 0.6%.

In Europe, stock futures point to a stronger open. Euro Stoxx 50 were up 0.35%, though German DAX futures were 0.55% higher and FTSE futures gained 0.48% in early deals.

Wall Street futures were slightly lower. S&P 500 futures fell 0.13% and Nasdaq futures were 0.21% lower.

Traders and investors now await a meeting of the European Central Bank later in the day for any signs of how Russia’s invasion of Ukraine will affect monetary policy in the region. US inflation figures are also due, which could further guide expectations for the Federal Reserve’s meeting next week.

Mansoor Mohi-uddin, chief economist at Bank of Singapore, said financial markets rallied on hopes that Ukraine and Russia may start to negotiate more seriously on their differences.

“The reaction, however, is unlikely to prove sustainable as the two countries have major differences still and the military conflict looks set to intensify with Russia aiming to capture Ukraine’s key cities.”

Russia’s foreign minister Sergei Lavrov arrived in Turkey ahead of planned talks on Thursday with his Ukrainian counterpart Dmytro Kuleba for what will be the first meeting between the two since Russia invaded Ukraine two weeks ago.

Adding to the uncertainties, Russia on Wednesday accused the US of declaring an economic war on the country, and put Washington on notice it was considering its response to a ban on Russian oil and energy.

EU leaders will phase out buying Russian oil, gas and coal, a draft declaration showed on Thursday, as the bloc seeks to reduce its reliance on Russian sources of energy, following a ban from the US.

Brent crude futures were up 3% on Thursday, at $114.64 a barrel, and US crude rose 1.73% to $110.58 a barrel, after comments from the United Arab Emirates (UAE) energy minister Suhail al-Mazrouei that his country is committed to the existing agreement by oil cartel Opec to ramp up oil supply.

Previously, prices slumped after UAE’s ambassador to Washington said the country will be encouraging Opec to consider higher output to fill the supply gap due to sanctions on Russia.

Higher energy prices will reinforce expectations that the US Federal Reserve will raise interest rates by 25 basis points at its policy meeting next week, with data due later in the day expected to show US consumer inflation racing at a 7.9% annualised clip in February.

“US equities could be in a holding pattern with higher levels of volatility as investors assess the impact of the Ukraine conflict on inflation and possible Fed actions,” said David Chao, Hong Kong-based global market strategist at Invesco.

US stocks surged overnight, led by financial and tech shares. The Nasdaq Composite added 3.59% while the Dow Jones Industrial Average rose 2%.

Amazon.com said on Wednesday its board approved a 20-for-1 split of the e-commerce giant’s common stock and authorised a $10bn buyback plan, sending the company’s shares up 7% in extended trading.

In currency markets, the euro was trading at $1.1054 after jumping 1.6% on Wednesday, its best day since June 2016, along with gains in European stocks and a sell-off in bonds, while the safe-haven yen, slipped to a one-month low of 116 per dollar.

The dollar index was at 98.144, after tumbling 1.2% overnight amid the euro’s surge, and hurt, along with the yen, by a rise in sentiment towards riskier assets like equities.

Gold was slightly lower, with spot gold easing 0.6% to $1,977.89/oz.

The yield on benchmark 10-year treasury notes dropped slightly to 1.9409% compared with its US close of 1.948% on Wednesday.

The two-year yield, which rises with traders’ expectations of higher Fed fund rates, touched 1.6638% compared with a US close of 1.678%.

Reuters