- Global equities and the dollar mostly eased on Wednesday as concerns lingered over tensions between Russia and Ukraine.
- Investors were also cautious as soaring inflation paved the way for aggressive central bank action.
- The Federal Reserve will release the minutes of its last meeting later today.
Global stocks edged lower on Wednesday as investors shrugged off an apparent de-escalation in tensions between Russia and Ukraine, and worries about inflation risk weighed on sentiment.
S&P 500 futures fell 0.2%, as did the Dow Jones and Nasdaq 100, Europe’s Stoxx 600 rose just 0.1%, while the FTSE 100 rose fell 0.4%.
Russia’s assurances on Tuesday that it was withdrawing 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 have faded. Wednesday.
“A diplomatic solution remains our base case (though arguably still a close call), and we expect the geopolitical risk premium to fade over time,” ING economists said.
Soaring 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 hit their highest level in 30 years in January, at 5.5%.
Investors are getting ready to peruse the minutes of the
latest policy meeting, due later Wednesday, for any insight into the likely outlook for interest rates.
Markets show that investors are currently expecting a 50 basis point rate hike in March, with at least five more rate hikes this year, according to the CME FedWatch Tool. Some investment banks, including Bank of America, are seeing up to seven hikes.
“Market participants will be watching the minutes carefully for clues on the Fed’s tightening plans; both whether takeoff will begin with a 50 basis point hike next month and how quickly the balance sheet is likely to unravel. downgrade,” said Michael Brown, head of market intelligence at Caxton.
Meanwhile, UK inflation data boosted the pound against other major currencies, but failed to 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 the Bank of England will tackle the bullish run quickly. price pressures.
Willem Sels, chief investment officer of HSBC Private Wealth, said he expects the central bank to hike rates to 1.25% from 0.5% currently, which is below market expectations of 1 .75% despite rising inflation.
“The silver lining? We think the Bank of England will raise interest rates less than the markets fear because it knows the factors driving inflation are also driving down income real, which threatens to limit economic growth,” he said.
Oil prices rallied, with WTI crude futures rising 0.75% to $92.78 a barrel, while Brent crude futures rose 0.62% to 94.06 $ per barrel.