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Asia stocks edge higher, oil races to the moon -Breaking

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© Reuters. An information board displays stock data at a Beijing brokerage office on January 2, 2020. REUTERS/Jason Lee

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Wayne Cole

SYDNEY – Asian shares rose after reassuring statements from the Federal Reserve helped Wall Street rally. But, oil prices and resources have spiralled ever higher due to the war in Ukraine. This is a bad sign for global inflation.

Western countries tightened sanctions against Russia after Ukraine’s second-largest city, Kharkiv was subject to heavy bombardment. Hundreds of countries also referred Moscow for investigation into possible war crimes.

Capital Economics’ Thomas Mathews said that investors seem to have discounted a higher chance of “stagflation lite”, which means sanctions could lead to more inflation in the developed world and less economic growth.

MSCI’s Asia-Pacific broadest index, which excludes Japan, climbed 0.4% to move away from its 15-month-low. The rush to commodity boosted resource-rich Australia by 0.9%.

Stock futures fell a little overnight while Nasdaq futures were up 0.2%

European shares were also granted a reprieve from the selling process, but JPMorgan (NYSE) analysts had a harsh warning for clients.

They wrote that investors should consider reducing their exposure to the Euro zone in the currency as well as the equity because of its vulnerability to further escalation.

They added that they had revised their commodity price projections by 10-20% across the board in light of the ongoing geopolitical crises. One silver lining to the story is the fact that the Fed was forced to revise its commodity price forecasts 10-20% higher by the market. We continue to expect a moderate hike.

Jerome Powell, Fed Chair, stated Wednesday that rates will likely rise by 25 basis points in March. The outlook is “highly uncertain” due to the conflict in Ukraine.

Futures responded by pricing out the possibility of a half point hike in March.

Powell warned that the Fed may need to raise its rates more frequently if inflation continues rising. The Fed had to take some safe-haven energy out of Treasuries. Ten-year yields went back up to 1.878% after Tuesday’s 2-month low of 1.682%.

European bonds lost some of the recent gains they had made after euro zone data showed that inflation rose to a record 5.8% in January. This makes it more difficult for ECB policymakers to be loose.

The Bank of Canada was concerned about inflation when it initiated a tightening cycle Wednesday by raising the rate to 0.5% with a quarter point.

This move, combined with strong oil prices, helped lift the Canadian dollar up to $1.2625 for five weeks. The Australian dollar reached a peak of six weeks, benefitting other commodity-linked currencies.

At $1.1112, the euro continued to be defensive after having made a 22-month high overnight at $1.1056. As Japan is an important importer of resources and energy, the dollar saw a slight increase in 115.53 Japanese yen.

It reached its peak at 97.377 in June 2020. Last time it was at 97.377.

Due to the safe-haven demand, gold was steady at $1.929 an ounce. [GOL/]

On the assumption that oil will be in short supply for many months due to sanctions against Moscow and major corporations divesting from Russian oil assets, oil prices soared above $110 per barrel. [O/R]

Another 36 cents rose to $110.96/barrel, but had yet to trade after a surge of 9% overnight to $114.54

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