European stocks and Wall Street equity futures drifted on Monday, following their best week since 2020, as a rally driven by signs of peace talk progress between Russia and Ukraine faded.
The regional Stoxx 600 share index, which last week erased all losses incurred since Russia invaded Ukraine in February, switched between small gains and losses. Germany’s Xetra Dax added 0.1 per cent while London’s FTSE 100 added 0.6 per cent as energy producers’ shares rose.
Futures trading implied Wall Street’s S&P 500 share index would flatline in early New York dealings while the technology-focused Nasdaq 100 would fall 0.1 per cent.
In Asia, Hong Kong’s Hang Seng lost 0.9 per cent with steeper drops for Chinese tech and property stocks.
The moves came as fierce fighting engulfed the Ukrainian port city of Mariupol, even after Turkey, which is mediating peace talks, claimed Moscow and Ukraine were converging on key aspects of an agreement.
“I was really surprised to see equities turn so positive last week,” said Ewout van Schaick, head of multi-asset at NN Investment Partners.
“The economic impact of the war is increasing,” he said, citing the risks of commodity inflation continuing beyond any resolution of the conflict because of sanctions against Russia and higher input prices denting companies’ profits.
Last week’s rally took the Stoxx 600 gauge 12 per cent above its Ukraine conflict-era low of March 7, which came after the biggest week of outflows from European equities in five years.
“Equity markets got very oversold,” said Paul O’Connor, head of UK-based multi asset at Janus Henderson. “They reached panic levels,” he added, “then rightly or wrongly investors then decided a resolution would begin to take hold concerning Ukraine, even though there is no visible progress towards de-escalation.”
Brent crude oil rose 4 per cent to $112.27 a barrel, taking its increase since the day before Russian president Vladimir Putin launched his invasion of Ukraine to more than 15 per cent. Russia is the world’s second-largest supplier of crude oil. And while the EU has not yet followed the US in banning Russian imports, it is facing mounting calls to do so.
Government debt prices dropped on Monday as traders cranked up their bets on the war driving sustained global inflation, reducing the appeal of fixed-interest paying bonds.
Yields on US Treasuries maturing in every period from two years to 30 years ahead rose as prices of the debt fell. The benchmark 10-year Treasury yield added 0.05 percentage points to 2.2 per cent on Monday. In an unusual move, the five-year yield rose higher, hitting 2.21 per cent, as traders backed away from medium-term inflationary risks and saw the US central bank raising interest rates more aggressively in response.
The US Federal Reserve last week raised its main funds rate for the first time since 2018. James Bullard, president of the St Louis Fed, then argued the central bank should raise this borrowing cost above 3 per cent this year to combat surging consumer prices, which rose at an annual rate of 7.9 per cent in February, marking a new 40-year high.
Germany’s 10-year Bund yield added 0.04 percentage points to 0.41 per cent, around its highest since November 2018. The equivalent UK gilt yield rose 0.06 percentage points to 1.56 per cent.
