May 23, 2022

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Oil surges above $110 a barrel, stocks rebound as fighting rages in Ukraine

Oil surges above $110 a barrel, stocks rebound as fighting rages in Ukraine

  • Stocks rebound in Europe, rebound on Wall Street
  • Oil rises to $110 a barrel due to Russian supply disruptions
  • Bond yields are rising, German bonds are now positive
  • Fed Chair Powell leans toward a 25 basis point rate hike

NEW YORK/LONDON (Reuters) – US and European stocks rebounded on Wednesday, with crude prices jumping above $110 a barrel as fighting in Ukraine raged for a seventh day, posing a challenge to central banks hoping to stem rising inflation.

Gold prices fell on improving sentiment and US Treasury yields rose from eight-week lows as investors weighed how aggressively the Federal Reserve could raise interest rates in the coming months with growth expectations a major concern.

Federal Reserve Chairman Jerome Powell said the Fed will press ahead with plans to raise interest rates this month in an effort to tame high inflation, but the war in Ukraine has made the outlook “extremely uncertain” for US policymakers as they plan ahead. Read more

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Powell told a congressional committee that he “tends to suggest and support a 25 basis point rate hike” when policymakers meet in two weeks. Traders now see a 5% chance of a 50bp rate hike at its meeting in two weeks and a 95% chance of a 25bp hike.

Marvin Low, a global macro strategist at State Street, said markets are struggling with what’s happening to growth in Europe and the United States because of the conflict in Ukraine.

“This increase in energy prices makes it a challenge for the Fed because on the one hand it increases inflation,” Luo said.

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“But overall, when you get these energy price hikes, there’s a deflationary component associated with that, because it dampens growth elsewhere,” he said.

A week into the war, Russia had not yet achieved its goal of overthrowing the Ukrainian government. The Ukrainians said that a battle took place in the port of Kherson, the first large city that Moscow claims to have captured. Read more

All eleven S&P sectors advanced, led by energy (.SPNY)The major European indexes closed the day in a sea of ​​green as well, with commodity-related stocks posting significant gains.

Pan-European STOXX 600 Index (.stoxx) Closed 0.90% higher, rebounding from a previous decline, MSCI’s gauge of stocks worldwide (.MIWD00000PUS) Gain 0.92%.

On Wall Street, the Dow Jones Industrial Average (.DJI) Up 1.81%, the S&P 500 (.SPX) Gain 1.77% and the Nasdaq Composite (nineteenth) It added 1.21%.

Eurozone bond yields rose after dramatic declines the previous day, with Germany’s real yield hitting a record low as traders assessed the economic fallout from the Ukraine invasion.

Tuesday’s repricing saw Germany’s 10-year yield, the main benchmark for the eurozone, post its biggest daily drop since 2011. Markets shed some of those moves, and Germany’s 10-year yield rose 8.1 basis points to 0.009%. The yield on the 10-year Treasury rose 12.6 basis points to 1.837%.

The Ukrainian war caused a decline in European bond yields

Eurozone inflation rose to another record high last month, intensifying the policy dilemma for the European Central Bank, which needs to convey a sense of calm amid the war-related market turmoil and also respond to mounting price pressures.

Oil jumped above $110 a barrel after sanctions against Russian banks disrupted supplies from one of the world’s largest oil exporters.

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US crude rose 5.6 percent to $ 109.18 a barrel, and Brent crude rose at $111.12, up 5.9 percent on the day.

Aluminum prices jumped to a new record high as investors worried that logistical difficulties will hamper metal supplies due to tough sanctions on main producer Russia.

Aluminum jumped for three months on the London Metal Exchange to a record high of $3,580 a ton.

The Russian ruble strengthened 7.63% at 103.10 per dollar.

Foreign investors are effectively stuck in their holdings of ruble-denominated bonds after Russia’s central bank temporarily halted coupon payments and a large external settlement system stopped accepting Russian assets. Read more

The sanctions against Russia “significantly increased the likelihood of the Russian government defaulting on hard currency bonds,” JPMorgan analysts said in a note.

The dollar index rose 0.228%, with the euro slipping 0.24% to $1.1099.

The Japanese yen was down 0.60% at 115.58 per dollar.

Russia’s default on international debt looms
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(Additional reporting by Herbert Lasch, with Elizabeth Hocroft in London.) Editing by Chizu Nomiyama and Margarita Choi

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