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LONDON, Sept 12 (Portal) – European stocks jumped on Monday after a rapid advance by Ukrainian forces in Kharkiv province in Russia’s worst setback since aborting its push in Kyiv in March, while the euro rallied by the European Central Bank in the last week’s inspired gains extended.
On Saturday, Moscow abandoned its main bastion in northeastern Ukraine when one of the war’s main front lines suddenly collapsed after Ukrainian forces rapidly advanced. Continue reading
The broad pan-European STOXX 600 index (.STOXX) was up 0.7% in early trade, hitting its highest level since late August.
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The German DAX (.GDAXI) rose 1.4%, the French CAC 40 (.FCHI) and the UK FTSE 100 (.FTSE) were both up 1%.
Asian stocks also rallied in slow trading as China and South Korea were on vacation.
MSCI’s broadest index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) rose 0.7% after recovering slightly from a two-year low last week. Japan’s Nikkei (.N225) added another 1.2% after rising 2% last week.
“The situation between Russia and Ukraine is raising some glimmers of hope for the market that there may be a resolution and that the intensity of the energy shock may be alleviated,” said Hani Redha, a multi-asset portfolio manager at PineBridge Investments.
“Right now, the balance of information we have is being interpreted by the market as bullish,” Redha added.
News of Ukraine’s progress also helped push the euro higher, extending last week’s gains after the European Central Bank (ECB) hit its highest level in almost four weeks against the dollar.
The single currency was also helped in part by a Portal report that European Central Bank policymakers see a growing risk that they will have to raise interest rates to 2% or more to contain record-high inflation despite a likely recession. Continue reading
The euro was last up 1.5% to $1.0194, hitting its highest level against a weakening dollar since August 17.
Meanwhile, peripheral euro-zone government bonds underperformed their peers, impacted by reports that the ECB could launch a debate on reducing its balance sheet next month.
The 10-year Italian government bond yield even rose 6.5 basis points to 4.098%, its highest level since mid-June.
The German 10-year bond yield rose 4 basis points, pushing the closely watched spread between Italian and German 10-year bond yields up to 237 basis points. ,
“There is an urgent need to frontload rate hikes and move rates to neutral as soon as possible,” Mohit Kumar, Jefferies rates strategist, said in a statement.
“Once we reach levels close to neutral, we expect the doves to regain control at the ECB and therefore view the recent shift as a frontloading exercise rather than a fundamental change in ECB policy,” added Kumar.
The dollar index, which measures the greenback against a basket of six currencies, fell 0.7% to 107.98, its lowest since August 26.
Still, the index is up over 12% this year after gaining over 10% against the euro, 13% against the pound and 24% against the Japanese yen.
US inflation data released on Tuesday will be key in determining the direction of travel in the near term.
Falling gasoline prices are dragging the consumer price index down 0.1%, according to a Portal poll.
The core is expected to rise 0.3%, although some analysts see a chance for a weaker report.
“Commodities have generally been down and that may be the main reason for the weaker numbers,” said PineBridge’s Redha.
A weak read could reignite speculation that the Federal Reserve will rise just 50 basis points this month, although it would likely need to be very weak to have any real impact given how tightly hawkish policymakers have been of late. Continue reading
Oil prices trended lower on concerns over a global economic slowdown, although cuts in supply led to a 4% rise on Friday.
On Monday, Brent was steady at $92.82 a barrel, while US crude was down 0.2% at $86.60.
The weaker dollar helped lift gold to $1,724 an ounce, off last week’s low of $1,690.
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Reporting by Samuel Indyk in London, with additional reporting by Wayne Cole in Sydney
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