Wayne Cole

SYDNEY (Reuters – Asian share market started Monday in a sad mood as the fighting in Ukraine continued with no signs of slowing down, leaving investors hoping for a peace agreement.

On Sunday, Turkey’s foreign minister stated that Russia and Ukraine are close to an agreement on critical issues. He expressed hope for a ceasefire.

Investors waited anxiously to find out if Russia would repay more interest this week. This month it must repay $615 million through coupons, and on April 4 a $2B bond will be due.

The shares markets rose last week as investors hoped for a peace agreement with Ukraine. However, it may take some actual progress before further gains can be justified.

Joe Biden, the President of the United States, will be visiting Europe this Thursday in order to meet NATO allies.

BofA’s Global Fund Manager Survey had a bearish tint with cash levels being the highest since April 2020 while global growth expectations were the lowest since 2008, according to BofA.

Commodities and long oil were the most popular trades and are vulnerable to pullback.

Japan holiday caused trade to slow down, causing stock futures to drop 0.3% while Nasdaq futures dropped 0.4%. EUROSTOXX50 futures dropped 0.1% while the futures edged upward 0.1%.

The MSCI’s Asia-Pacific share index was the narrowest outside of Japan was flat. However, futures closed at the close of business but traded 200 points above cash.

Chinese blue chips grew 0.1% with investors still waiting for details about possible stimuli from Beijing.

The Federal Reserve Chair Jerome Powell spoke on Monday and at least six other members throughout the week to prepare bond markets for more hawkish language.

The policy makers are predicting a series of increases to increase the funds rate from 1.75% to 3.0% before year’s end. According to the market, there is a 50-50 chance for a 1/2 point increase in May. There could be a much greater chance of it increasing by June.

Bruce Kasman chief economist of JPMorgan (NYSE:), stated that the central banks have balanced the short-term downside risks to inflation and growth by sending a clear signal that their policy is moving towards normalization.

However, an extended cut off of Russian energy supplies could push inflation significantly higher and magnify an already severe squeeze for U.S. consumer buying power,” he said, warning that it would probably throw the Euro zone into recession.

This scenario would result in policy normalization being stopped around the globe.

CURVES FLATTENED

Markets are aware of risks to growth due to the flattening Treasury yield curve in recent weeks. Spread between 10-year and 2-year yields is now just 21 basis point, the narrowest since the outbreak of pandemics in 2020.

The U.S. Dollar has appreciated against the Japanese yen due to higher Treasury yields. However, the Bank of Japan is committed to maintaining yields close zero. With a 1.6% increase in last week’s dollar, it was close to its highest level since 2016 at 119.18yen.

Because the dollar has had less success elsewhere, history suggests that it tends to fall once the Fed starts a tightening campaign.

After bouncing 1.3% over the past week, the euro held at $1.1045 Monday. This was down from 99.415, when it reached its highest point at 98.270.

CBA’s head of international economics Joseph Capurso noted that flash manufacturing surveys (PMI) from Europe could be a problem for the euro this week.

He stated that Europe is the most vulnerable to lower gas supply and increased prices from Russia and Ukraine. “A drop in Eurozone PMI to contractionary territory may push it closer towards its war low at $1.0806.”

The commodity market has seen gold lose more than 3 percent last week as it fails to benefit from inflation fears or safe-haven flow. Last week, it was up 0.3% at $1.927 per ounce. [GOL/]

Last week’s oil prices fell, but they were higher Monday due to a lack of Russian barrels. [O/R]

The price was $2.85 more at $110.78 while the barrel cost rose $2.90 to $107.60