Asia shares pare losses, US futures rally on Ukraine hopes

Also troubling markets has been the prospect of an aggressive tightening by the US Federal Reserve as inflation runs rampant. PHOTO: EPA-EFE

LONDON (REUTERS) - Asian share markets pared losses and Wall Street futures rallied on Monday (Feb 21) as a glimmer of hope emerged for a diplomatic solution to the Russia-Ukraine stand-off.

United States President Joe Biden and Russian President Vladimir Putin have agreed in principle to hold a summit on the Ukraine crisis.

The Kremlin said there were no concrete plans in place for a summit, but that a call or meeting could be set up at any time.

A summit would be held only if Russia did not first invade Ukraine, which Western countries have said it could do at any moment despite repeated denials.

Russia extended military drills in Belarus due to end Sunday, and Western countries say it has continued to build up troops on the Ukraine border.

“Markets are taking President Putin at his word that he is not wanting a full-scale escalation, volatility is elevated but it’s still contained,” said Mr Giles Coghlan, chief currency analyst at HYCM.

In a reminder of the stakes, Reuters reported that Mr Biden had prepared a package of sanctions that includes barring US financial institutions from processing transactions for major Russian banks.

S&P 500 stock futures rose 0.5 per cent. US markets are on holiday on Monday, but futures still traded.

European stocks gained 0.3 per cent and British stocks rallied 0.4 per cent.

MSCI’s broadest index of Asia-Pacific shares outside Japan pared earlier losses to be off 0.3 per cent, while Japan’s Nikkei halved its drop to close down 0.8 per cent.

Hong Kong’s Hang Seng index ended down 0.7 per cent while the Shanghai Composite was flat.

Singapore’s Straits Times Index closed up 0.2 per cent.

Also troubling markets has been the prospect of an aggressive tightening by the US Federal Reserve as inflation runs rampant.

The Fed’s favoured measure of core inflation is due out later this week and is forecast to show an annual rise of 5.1 per cent - the fastest pace since the early 1980s.

“We now look for the Fed to hike 25bp (basis points) at each of the next nine meetings, with the policy rate approaching a neutral stance by early next year,” said JPMorgan chief economist Bruce Kasman.

At least six Fed officials are set to speak this week and markets will be hyper-sensitive to their views on a possible hike of 50 basis points in March.

Recent commentary has leaned against such a drastic step and futures have scaled back the chance of a half-point rise to around 20 per cent from well above 50 per cent a week ago.

The euro zone economic recovery rebounded sharply this month on easing of Covid-19 restrictions, according to IHS Markit’s Flash Composite Purchasing Managers’ Index.

Gold has benefited from its status as one of the oldest of safe harbours, climbing to nine-month highs of US$1,908 an ounce, before dropping back to US$1,896 an ounce.

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