Stella Qiu, Alun John

BEIJING (Reuters] – Asian shares were volatile Thursday, and oil prices dropped as a result of the Ukraine conflict and the more hawkish comments by U.S. Federal Reserve staff. Investors felt uneasy.

MSCI’s largest index of Asia-Pacific shares, outside Japan, has recouped its losses and is now 0.34% off, with Chinese stocks leading the fall.

Hong Kong’s index fell 0.3% and the mainland’s blue chip index dropped 0.6%.

However, gains reversed to gain 0.2% and close the session at an all-time high nine weeks. The rebound in and purchase into Japan’s end of the fiscal year, this month, helped the pair reach a new high. [L2N2VR0D6]

According to Kyle Rodda of IG markets, “It’s still a volatile market which (which) suggests these ripping moves should be treated with caution.”

As indicated by the early futures trading, European markets look stronger than ever. German futures rose 0.2%, while the pan-region was up 0.299%. Futures traded up 0.2%.

Futures on E-mini for rose 0.4%

Driving some of the volatility, Federal Reserve policymakers on Wednesday signalled they stood ready to take more aggressive action to bring down runaway inflation, including a possible half-percentage-point interest rate hike at the next policy meeting in May.

All three major U.S. stock benchmarks fell 1% overnight. [.N]

We expect only limited upside for U.S. equity markets. Analysts stated, “We expect limited upside for U.S. Equities. The Fed clearly prioritizes fighting inflation. Barclays (LON:), in a Thursday note

The topic of geopolitics will also be high on the minds. U.S. Vice President Joe Biden is scheduled to attend an urgent NATO summit later that day. Biden will speak to leaders of G7 and the European Union. The markets are on alert for an increase of Russian sanctions.

Russia President Vladimir Putin declared Wednesday that Moscow’s actions in Ukraine are a “special opera” and would like to be paid in Russian rubles for gas being sold to countries considered “unfriendly”, thereby jolting the energy markets.

On Thursday, however, crude oil prices gave up gains from volatile trading on Thursday. Investors assessed the potential supply issues in tight markets and the prospects for a new Iran deal. [OR/]

At a summit on Thursday, EU leaders should agree to buy gas together. This is in an effort to lessen dependence on Russian fuels as well as to build a buffer to supply shocks. But, the EU will not sanction Russian oil.

Futures dropped 58cs or 0.4% to $121.02 per barrel. U.S. West Texas Intermediate futures lost 96cs or 0.84% to $113.97 per barrel at 0502 GMT. In early trade, the contracts increased by $2 and $1.

In Asian trading, however, the yield on benchmark was at 2.3444%, after it had fallen from its overnight peak of 2.5170%.

Two-year yields are more sensitive to trader expectations regarding the Fed funds rates and were at 2.1366% on Tuesday, almost three years after their high of 2.2020% on Tuesday.

Although the U.S. dollar was supported by commodity currencies, it suffered from an abrupt rally caused by high export prices, although the U.S. government bond market gave little support to the struggling Japanese yen. [FRX/]

As rising U.S. yields combined with a declining trade balance have drained cash from Japan, the yen hit a six year low of 121.41 Wednesday.

It traded at $1.942.9/ounce. [GOL/]