- U.S. equity futures traded higher on Thursday as investors focused on key meetings between G-7 and EU leaders.
- EU sanctions on Russia’s energy exports could come on top of other impending measures, and it’s pushing oil and gas higher.
- Bond yields rose after tough inflation talks from Federal Reserve officials.
U.S. stock futures rose on Thursday following more hawkish comments from
officials on inflation, while oil traded around $120 a barrel as Western leaders met to discuss a possible ban on energy exports from Russia.
G-7, NATO and European Union leaders meet, along with US President Joe Biden, to collectively keep pressure on President Vladimir Putin over Russia’s month-long war in Ukraine .
More sanctions are imminent, and the question is whether these will include an EU ban on Russian energy exports. Europe depends on Russia for 40% of its natural gas needs and a large part of its oil imports.
Meanwhile, Russia has said it will only accept ruble payments from “hostile countries” for its oil and gas. That sent the ruble to its highest level in three weeks, prompted a nearly 20% rise in benchmark natural gas futures in Europe and pushed oil back above $120.
Futures on the U.S. S&P 500 stock index rose 0.6% on Thursday, while those on the Dow Jones gained 0.5% and the Nasdaq 100 rose 0.7%. Benchmarks fell more than 1% the day before as the Fed’s rhetoric about inflation and the oil boom unnerved investors.
“Obviously the markets to watch are the usual suspects. This could be key to the latest rally in oil, with a ban likely to send it higher due to supply constraints,” said analyst Matt Simpson. of CityIndex.
“Equity markets seem a bit detached from this theme, although European stocks could feel the heat if NATO upsets Putin enough. ‘Europe as they have apparently noticed rising yields,’ he said.
In Europe, the Stoxx 600 gained around 0.2% on the day, as rebounds in utilities, construction and chemical stocks offset declines in the travel and retail sectors.
Brent crude rose 1% to $123.00 a barrel, after gaining nearly 14% in the past week alone. WTI crude, which is less sensitive to Russian flows, rose 0.5% to $115.50.
Dutch natural gas futures – the European benchmark – rose 3.8% to 121.44 euros per MWh, after hitting a record high above 217 euros just two weeks ago.
“It’s been another confusing 24 hour period of reacting to the price moves that are making headlines in Russia and Ukraine – there are plenty of them – and although the dominant theme has been Putin’s decision to price sales of natural gas in rubles, which caused a sharp rise in EU natural gas and Brent prices, on a more positive note, Ukrainian President Zelenskyy suggested that we take it step by step,” said the Pepperstone strategist Chris Weston.
Meanwhile, Fed officials are targeting searing US inflation. A number of them on Wednesday reiterated Chairman Jerome Powell’s commitment to controlling price pressures, including a 50 basis point interest rate hike as early as May.
“I have everything on the table right now. If we have to do 50 (basis points), 50 is what we will do,” Reuters said, quoting San Francisco Fed Chair Mary Daly as saying. a Bloomberg event. “With such a strong labor market, inflation, inflation, inflation is the main focus.”
Ten-year US Treasuries continued to rise, gaining 3 basis points to 2.355%, their highest level in three years. The 2-year interest rate sensitive note gained 3 basis points to trade around 2.148%.
“The bond market is not painting a rosy picture at the moment, signaling both an economic slowdown and a potential financial error,” said Michael Brown, chief strategist at Caxton FX.