Wayne Cole

SYDNEY, (Reuters) – Asian shares rose and oil fell on Monday due to optimism about progress in Russian-Ukraine talks. Fighting continued and bond markets feared that the United States would raise rates this week.

Although Russian missiles struck a Ukrainian military base close to the Polish border on Sunday, both parties expressed their highest optimism about prospects of talks.

Only 0.7% of stock futures gained on the possibility for peace; Nasdaq futures climbed 0.6%.

After dropping almost 4% last week, the MSCI broadest index of Asia-Pacific shares outside Japan rose 1.1%.

After taking a blow last week, bonds were still under pressure. Rising commodity prices appeared to be set to increase inflation further. Yields on 10-year Treasuries rose three basis points to 2.03% early Monday.

A key indicator of U.S. inflation expectation jumped to 3%, which is near-record highs.

This merely confirmed expectations that the Federal Reserve would raise rates by 25 basis point at this week’s policy meeting and signaled more to come via members’ “dot chart” forecasts.

Kevin Cummins (NYSE : ), the chief U.S. economic advisor at NatWest Markets stated that “the dots will likely cluster around four to five hikes in 2022 up from three before,” given the faster pace of inflation since January FOMC meeting.

“We believe that we may also receive an addendum from the Fed on their plans to shrink the balance sheet, as soon as possible.”

Expect the Bank of England to raise rates to 0.755% this Thursday. This is the third increase in a row.

Futures on Fed funds indicate no less than six to seven increases this year, at around 1.75%. This keeps the U.S. Dollar underpinned close to the top since May 2020.

Euro was at $1.0927 and just a few months from its 22-month low at $1.0804. While the dollar reached an all-time high of 117.55 on the Japanese yen, the dollar held at $1.0927.

Rodrigo Catril (a senior FX strategist for NAB) stated that the yen was unable to show its safe-haven characteristics due to the large rise in U.S yields and BoJ yield curve policy.

Japan is also an importer of large amounts of energy, which raises concerns about a trade shock due to higher energy prices.

On Monday gold lost its safety-haven appeal. It fell 0.6% to $1972 per ounce, and was away from last week’s peak of $2,069. [GOL/]

As well, oil prices saw a slight decline in their chances of making progress regarding Ukraine. However, talks with Iran seem to be stuck. [O/R]

The last price was $1.69 lower at $110.98. It fell by $2.11 to $107.22.