Markets sighed with relief as U.S. Secretary of State Antony Blinken decided to meet with Russian Foreign Minister Sergei Lavrov, bolstering prospects of a diplomatic settlement to the Ukraine standoff.
As the positive sentiment soothed jangled investors’ nerves, U.S. stock index futures attained half a percent, the U.S. Yield curve bounced back from New York session lows, & safe-haven currencies like the yen retreated.
Markets, on the other hand, remain skeptical that a diplomatic deal will be done soon, with Ukrainian government troops & Russian-backed insurgents in the country’s east exchanging new claims of shelling as well as other ceasefire violations.
No Solace To Markets
A measure of implicated volatility in the capital market is nearing a one-year high, reflecting the concern in broader markets. In contrast, financial markets are strewn with massive options contracts intended to protect investors if prices swing violently if a war breaks out.
Aside from the constant pounding of war drums, recent comments from U.S. Federal Reserve officials brought no solace to markets ahead of the year’s probably most crucial central bank policy conference in March.
Loretta Mester, president of the Cleveland Fed, said the Fed has to withdraw policy accommodation more aggressively than it did during the Great Recession.
Her remarks reflect a range of opinions among Fed members in recent days, with some officials favoring a gradual increase in interest rates, while famous hawks like St. Louis Fed President Jim Bullard prefer a full percentage point boost by July.
A Major Issue
Even though futures have lowered the probability of a 50-basis point rate hike next month, international markets are expected to fall for the second week in a row, signaling that investor uncertainty over policy tightening’s direction remains a major issue.
Markets should have more direction on Friday as a result of the following key developments:
Existing house sales in the United States for January, retail sales in the United Kingdom for January, and the Eurozone’s early consumer sentiment reading for February.
Evans, Waller, Williams, and Brainard are among the Fed’s macro speakers.
Deere (NYSE: D.E.) reported results in the United States, while Allianz (DE: ALVG), NatWest, Pearson, BASF, and Swiss Re reported earnings in Europe (OTC: SSREY), reports Reuters.com
