European markets started the week in the green as oil prices fell after parts of Shanghai entered lockdown and Ukraine and Russia start their latest round of peace negotiations on Monday in Turkey.
The FTSE 100 (^FTSE) shot up 0.5% as investors watch out for a speech from Bank of England governor Andrew Bailey on Monday. UK chancellor Rishi Sunak is also facing MPs about his Spring Statement.
Sterling (GBPUSD=X) lost ground against safe haven dollar ahead of the two key speeches. It fell 0.2% to $1.315 and was 0.3% lower against the euro (GBPEUR=X).
Elsewhere in Europe, France’s CAC (^FCHI) was 1.5% higher and the DAX (^GDAXI) rose 1.7% in Germany.
“The FTSE 100 is preferring to focus on renewed peace talks between Russia and Ukraine, amid hopes there can at least be a move towards an end in the fighting,” said Russ Mould, AJ Bell investment director. “A return to the status quo which existed before the invasion seems impossible though and the implications of the conflict are almost certain to be lasting whenever it comes to an end.”
Ukraine president Volodymyr Zelensky said he’s willing to discuss “neutrality” in order to secure a peace deal with the Kremlin as the war enters a second month.
Crude prices edged lower on Monday after China, the world’s biggest oil importer, announced a phased lockdown for key financial and manufacturing city Shanghai.
Brent crude (BZ=F) dipped 3.8% to $116.03 (£88.19) a barrel. US light crude (CL=F) was 4.2% lower to $109.03 in electronic trading on the New York Mercantile Exchange at the time of writing.
Neil Wilson, chief market analyst at Markets.com, said oil markets and other commodities will “continue to remain sensitive headlines” amid the Ukraine war.
“Peace talks have yielded little and increasing concerns about tightness in the physical market were evident last week with steep backwardation emerging again in the futures curve.”
Across the pond, US benchmarks were mixed on Friday as traders grapple with the twin issue of inflation and the speed of the Federal Reserve’s interest rates hikes.
Wall Street’s S&P 500 (^GSPC) advanced 22.90 points, or 0.5%, to 4543.06. The index extended its gains over the past two weeks to 8.1%, its strongest run since 2020. The tech-heavy Nasdaq (^IXIC) dropped 0.2%. The Dow Jones (^DJI) closed the week 0.3% higher, adding 0.4% on Friday.
Futures for the S&P 500 (ES=F) dropped 0.4%, while futures for the Nasdaq 100 index (NQ=F) declined 0.5%, and Dow Jones futures (YM=F) drifted 0.4% lower on Monday as sovereign bonds tumbled.
The yield on the benchmark 10-year note (^TNX), which moves inversely to its price, surged 2.5%, above a technical threshold that has served as a ceiling since the late 1980s. This is a gauge of future interest rates and underpins global borrowing costs.
Meanwhile, the yield on the five-year note rose above the 30-year as a key part of the Treasury bond curve inverted for the first time since 2006. The move suggests that investors are worried about the risk of an economic downturn as monetary policy tightens.
Richard Hunter, head of markets at Interactive Investor, said: “In the US, inflation numbers and the monthly non-farm payroll data are likely to underline the Federal Reserve’s current focus on the former, with the latter now implying an economy which is nearing full employment.
“Indeed, having digested the initial interest rate rise, some are now calling for a more aggressive approach from the Fed in tackling soaring inflation. The possibility is now growing for 0.5% hikes at both the May and June meetings.
“From the Fed’s perspective, this remains a difficult balancing act. The economy seems to be on a recovery trajectory, but the Treasury yield curve in the US is getting close to inversion. This implies concerns that there may be an overshoot on hiking rates, which could result in an unwanted Fed-induced recession.”
It comes as president Joe Biden is expected to announce a wealth tax aimed at billionaires in America as part of his 2023 budget plan later on Monday.
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Overseas markets were mixed overnight as the lockdown in Shanghai, a key financial and manufacturing hub damped the mood in Asia. The MSCI’s broadest index of Asia-Pacific shares excluding Japan dropped 1.1%.
The Shanghai Composite (000001.SS) fell 0.2%, the Nikkei (^N225) was over 0.7% lower in Japan, while the Hang Seng (^HSI) edged 0.9% higher in Hong Kong.