Russian Defense Ministry Press Service
- Global stocks and the dollar mostly eased on Wednesday as concern persisted over Russia-Ukraine tensions.
- Investors were also cautious as rocketing inflation set the stage for aggressive central bank action.
- The Federal Reserve will release the minutes of its latest meeting later in the day.
Global shares edged lower on Wednesday, as investors shrugged off an apparent de-escalation of tensions between Russia and Ukraine, and concerns over the risk of inflation weighed on sentiment.
S&P 500 futures fell 0.2%, as did those on the Dow Jones and on the Nasdaq 100 Europe’s Stoxx 600 was up just 0.1%, while the FTSE 100 fell 0.4%.
Russia’s assurance on Tuesday that it was pulling back some troops from the border with Ukraine added to market optimism that Moscow and the West could reach a peaceful solution, although some of those gains had faded by Wednesday.
“A diplomatic solution remains our base case (albeit arguably still a close call), and we expect the geopolitical risk premium to fade with time,” economists at ING said.
Surging inflation is putting pressure on central banks to raise interest rates, which has created a headwind for the stock market. Data on Wednesday showed UK consumer price pressures ran at their highest in 30 years in January, at 5.5%.
Investors are preparing to scour the minutes of the Federal Reserve’s most recent policy meeting, which are due later on Wednesday, for any insight into the likely outlook for interest rates.
Markets show investors currently expect a 50 basis-point rate increase in March, with at least another five rate rises this year, according to the CME FedWatch Tool. Some investment banks, including Bank of America, see as many as seven hikes.
“Market participants will closely examine the minutes for hints on the Fed’s tightening plans; both whether lift-off will begin with a 50bps hike next month, and how rapidly the balance sheet is likely to be run down,” said Michael Brown, Head of Market Intelligence at Caxton.
Meanwhile, inflation data in the UK boosted the pound against other major currencies, but did not trigger a sell-off in government bonds. Yields on the two-year gilt – the most sensitive to interest rate expectations – fell 4 basis points to around 1.477%, as investors bet that the Bank of England will tackle rising price pressures swiftly.
Willem Sels, who is chief investing officer of HSBC Private Wealth, said he expects the central bank to raise rates to 1.25% from 0.5% right now, lower than market expectations of 1.75% despite the increase in inflation.
“The silver lining? We think the Bank of England will hike interest rates less than the market fears, as it knows that the factors behind inflation are also the drivers behind lower real income, which threaten to limit economic growth,” he said.
Oil prices picked up, with WTI crude futures rising 0.75% to $92.78 a barrel, while Brent crude futures were up 0.62% to $94.06 a barrel.
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